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What The New Canadian Mortgage Charter Means

What the New Canadian Mortgage Charter Means

This past fall, the federal government announced a Canadian Mortgage Charter, which the Liberal party says will help “vulnerable borrowers” and bring relief to those potentially impacted by the higher interest rate environment.

But what does this mean exactly?

First and foremost, the new charter is not a law, nor are there any plans to pass legislation to make it a law. It’s basically a list of rules that financial institutions are expected to follow.

With that in mind, under the charter, banks are supposed to contact homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options. This includes the ability to make lump sum payments to avoid negative amortization and the option to sell their principal residence without prepayment penalties.

Lenders are also expected to offer temporary extensions of amortization periods for mortgagers at risk and to waive any fees and costs for doing so.

In addition, banks aren’t to charge “interest on interest” if a borrower is temporarily in a period of negative amortization, which means they are covering just the interest without paying down any principal.

Finally, insured mortgage holders are exempt from re-qualifying under the stress test should they decide to switch lenders at the time of their mortgage renewal.