In its 2023 Fall Economic Statement, the federal government introduced the Canadian Mortgage Charter, a new initiative designed to ease housing affordability pressures that have emerged from rising interest rates, limited housing supply and related economic strains. The charter sets expectations for banks and lenders and is part of a broader package of affordability measures the government has announced in recent months, many of which focus on lending practices, fees and borrower protections.
How do interest rates affect housing affordability?
To fight high inflation, the Bank of Canada raised its benchmark interest rate several times over the past two years. That benchmark influences interest charged across many financial products. For example, guaranteed investment certificates (GICs) now offer higher returns than in recent years because of the elevated rate environment.
Unfortunately for homeowners, mortgage interest rates also move with the benchmark. Borrowers with variable-rate mortgages have seen payments rise as the benchmark climbed. And even homeowners with fixed-rate mortgages face higher costs when their term expires and they must renew at current market rates. The result is increased financial pressure for many households trying to afford mortgage payments, rent or other housing-related expenses.
Deputy Prime Minister and Minister of Finance Chrystia Freeland described the charter as a response to the strain many Canadians are feeling: “In the face of a rapid global increase in interest rates, many Canadians are feeling the squeeze, particularly when it comes to affording a home to rent or own.” The Canadian Mortgage Charter is one measure intended to provide practical relief for borrowers who may be at risk of serious financial hardship.
What is the Canadian Mortgage Charter?
The Canadian Mortgage Charter is a concise, public-facing statement of expectations for banks and other mortgage providers regarding how they should treat borrowers identified as vulnerable or at risk. The charter builds on earlier guidance issued by the Financial Consumer Agency of Canada (FCAC) and translates those principles into a clear set of commitments that borrowers can reasonably expect from their lenders.
The charter lists six specific expectations that are intended to protect and assist mortgage holders:
- Allow temporary extensions of the amortization period for mortgage holders who are at risk of financial distress.
- Waive fees and costs that would normally be charged for accessing relief measures, so that relief is not undermined by additional charges.
- Not require insured mortgage holders to requalify under the insured minimum qualifying rate when they switch lenders at renewal, reducing barriers to moving to a more affordable lender.
- Proactively contact homeowners four to six months before mortgage renewal to explain their renewal options and support informed decisions.
- Give at-risk homeowners the ability to make lump-sum payments to avoid negative amortization or to sell their principal residence without incurring prepayment penalties in qualifying circumstances.
- Not charge compound interest (interest on interest) if relief measures result in a temporary period of negative amortization.
Items three and four are notable additions: this is the first time lenders have been publicly asked not to force requalification for insured borrowers who change lenders at renewal, and the first time lenders have been explicitly asked to reach out to borrowers several months ahead of their renewal date to discuss options.
What does the charter mean for Canadian mortgage holders?
The charter aims to encourage lenders to identify borrowers facing difficulty and offer tailored relief so fewer people experience extreme financial hardship or risk losing their homes. By spelling out these expectations, the government hopes banks will take proactive steps to prevent avoidable defaults and support customers through temporary setbacks.
It is important to understand, however, that the charter is not legislation. It sets out expectations rather than legal obligations. If a lender does not follow the charter’s guidance, borrowers’ primary route for recourse is to file a complaint with the Financial Consumer Agency of Canada. The charter does not specify penalties for non-compliance, so its effectiveness will depend in part on how lenders choose to adopt these practices.
Alongside the mortgage charter, the Fall Economic Statement also announced substantial financing to accelerate housing construction and signaled plans to limit the use of short-term rentals where appropriate so more homes are available for long-term residents. These supply-side and regulatory measures were presented as part of the government’s broader strategy to address housing affordability over the medium term.
Overall, the charter reflects a recognition of the financial pressures many Canadians face and an intent to reduce avoidable hardship. Whether it will deliver meaningful, widespread relief for mortgage holders remains to be seen; close monitoring and clear communication between lenders and borrowers will be key to achieving the charter’s goals.
Read more about mortgages:
- Mortgage affordability calculator
- The best 5-year fixed mortgage rates in Canada
- The complete guide for first-time home buyers in Canada
- Can a first-time home buyer have a mortgage co-signer?