Amid the rapid rise in interest rates and the increased cost of living, the Financial Consumer Agency of Canada (FCAC) has issued guidelines to banks saying they should offer “relief measures” to consumers in “mortgage hardship.”
FCAC said it expects federally regulated financial institutions to identify such consumers and proactively offer measures.
Those measures include extending their amortization period—the number of years it would take them to pay off their mortgage in full—to lower their monthly payments. FCAC issued guidelines to this effect on March 21.
It said lenders should especially check in on homeowners with variable-rate mortgages. Some may be struggling with their higher monthly payments, and those with fixed monthly payments may not even be covering the interest now.
Also of concern are those with fixed-rate mortgages coming up for renewal. It may be hard for them to cope with the change to a higher rate.
FCAC said lenders should “monitor their consumers for early signs of mortgage hardship” and “proactively contact and provide information regarding mortgage relief measures.”
It also said consumers’ credit scores should not be affected if they accept mortgage relief measures.
The guidelines are meant to help, “consumers who are vulnerable to mortgage delinquency as a result of exceptional circumstances.”
The Bank of Canada starting raising interest rates in March 2022 with 8 consecutive hikes. Earlier this month, it held its rate steady for the first time, at 4.5 percent, keeping its promise to pause the hikes. It said, however, it is “prepared to increase the policy rate further if needed” to lower inflation.
One in six Canadians reported in February that they would likely default on their mortgages or other major loans within 60 days, according to the Canadian Maru household outlook index. That’s the highest number since Maru began tracking in 2020.
Most likely to default were young people, aged 18 to 34. Also likely were respondents with the highest incomes, and those living in either Ontario or Atlantic Canada.
Deutsche Bank recently noted that Canada has the fourth-highest household debt-to-income ratio in the world, after Norway, Australia, and Sweden.
In January, Oxford Economics said 10 percent of recent new mortgages in Canada involved risky lending practices.
Rahul Vaidyanath contributed to this report.