(Reuters) – Canada’s financial regulator on Wednesday issued new guidelines for lenders aimed at protecting mortgage holders facing high borrowing costs or at risk of default.
The Financial Consumer Authority of Canada (FCAC) says federally regulated financial institutions, including banks, must work to help high-risk consumers by “providing tailored support,” which may include Waiver of fines or other fees.
FCAC says two-thirds of mortgage holders are having difficulty meeting their financial commitments.
Canadians are facing the burden of high interest rates, forcing them to either increase their monthly contributions or extend the amortization period, while high inflation is putting many under pressure from rising living costs.
“Today’s economic environment is characterized by high household debt, rising costs of living and rising interest rates. As a result, some mortgage holders are at risk of not being able to make regular payments,” FCAC said.
In many cases, holders of fixed-payment variable-rate mortgages pay only the interest portion of their mortgage, slowing down their debt repayments.
In some cases, mortgage holders enter negative amortization, which means their fixed payments do not cover the full interest portion, resulting in an increase in accrued interest and the total amount owed.
FCAC expects lenders to implement policies and procedures such as waivers of prepayment penalties, waivers of internal fees and costs, no interest charges, and extended amortization.
However, the Office of the Superintendent of Financial Institutions urged lenders to address the risks posed by mortgage deferrals, saying that while it could help borrowers, it would keep them in debt for longer.
Canada’s top banks say they are already working with customers to help, which could include skipping payments or extending amortization periods.
“Canadian banks are already working with at-risk customers to provide a range of recommendations and measures to help them keep their mortgages in good standing,” Canada People reported that the Bankers Association (CBA), which represents more than banks.
The CBA said it was reviewing the agency’s guidelines.