Is Help On the Way For At-Risk Homeowners?

For variable-rate mortgage holders or homeowners facing an imminent renewal of their home loans, it’s already been a long, stressful summer of watching interest rates soar.

“The best way to explain it to people is, take the heightened emotional feelings that people felt at the beginning of COVID — that they’re going to die and are in isolation — and now apply it to the financial realm,” says Frances Hinojosa, CEO of Toronto-based mortgage brokerage Tribe Financial.

But new guidance from the Financial Consumer Agency of Canada (FCAC) could make for a more affordable autumn. The FCAC, a federal body that safeguards the rights of consumers of financial products, recently proposed several new measures it hopes federally regulated financial institutions (FRFIs) will implement to help borrowers who may be at risk of default.

If put into practice, the measures could provide new paths to affordability for homeowners with ballooning mortgage payments. The question is whether they’ll be enough to keep those balloons from bursting.

Mortgage relief measures proposed by the FCAC

In its “Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances,” the FCAC describes a number of practical ways FRFIs can provide temporary relief to borrowers who may be at risk of default for reasons that include rapidly rising interest rates or an unaffordable renewal. These measures include:

Waiving prepayment penalties if an at-risk borrower makes a lump- sum payment that goes beyond their prepayment limits, either to avoid a negative amortization situation or because they had to sell their house.
Waiving internal fees for services that might provide mortgage relief, like extending an amortization period.
Not charging interest on top of unpaid interest that has been added to the loan balance if a mortgage relief strategy leads to negative amortization.
Not offering less advantageous rates when a borrower can’t qualify for renewal with a different lender.
Not allowing a late payment or delinquency to appear on the borrower’s credit report if it occurs as the result of a new mortgage payment arrangement.

Potential issues with the FCAC’s recommendations

Graeme Moss, founder and manager of Fair Mortgage Solutions in Hamilton, Ontario, doesn’t see banks waiving prepayment penalties.

“It would stun me to see a bank waive a penalty,” Moss says. “I’ve never seen them be flexible on that.”

Hinojosa says waiving prepayment penalties may not provide much relief even if the measure is implemented. As she points out, how many Canadians even have the savings set aside to go over their 15% or 20% annual prepayment limits?

“I really don’t feel you’re going to see too many individuals that are able to make that large of a lump sum,” she says.

Hinojosa says that the waiving of internal fees could provide borrowers a modicum of relief, but she doesn’t feel banks could realistically avoid either charging interest on unpaid interest — a scenario in which they’d be earning no money — or determining renewal rates based on a borrower’s current economic circumstances.

“I mean, even today we don’t see [an] even playing field,” Hinojosa says. “Not everyone gets the same rate at renewal time.”

Keeping missed payments or delinquencies off of a borrower’s credit report could help them secure more manageable terms and interest rates in the future, but Hinojosa wonders if today’s banking infrastructure would support such a measure, as many credit reporting systems are automated.

What to do if FCAC’s new mortgage guidelines aren’t implemented

The FCAC is more of a consumer advocacy group than an official regulator. As such, FRFIs are not bound by the Agency’s suggestions and aren’t required to provide more payment relief than they already are.

In an email, the FCAC said it will “actively promote and monitor” how FRFIs are complying with the guidelines, but it didn’t go much further than that. It’s really up to borrowers and lenders to work together to craft workable, individualized solutions.

So, how can you get that particular ball rolling?

Call your lender

Whether you’re just starting to worry about your mortgage, or have been battling with rising interest rates for months, it’s likely that your lender has mortgage management solutions that can help in times of intense financial stress.

“Banks in Canada are already working with customers at risk, offering a range of advice and measures to help keep their mortgages in good standing,” the Canadian Bankers Association said in an email.

You may be able to arrange a brief payment pause with your lender, or refinance your mortgage to either consolidate debt or extend the amortization period and lower your monthly payment, according to Olympia Baldrich, VP of retail products and real estate secured lending at TD Bank, said in an email.

Call a mortgage broker

But what if the solutions available through your federally regulated lender aren’t enough, or your bank’s mortgage agents are too swamped with similar requests to answer when you call? In these cases, it’s not a bad idea to reach out to a mortgage broker and ask for assistance.

Just because your mortgage is with a particular lender does not prevent you from getting advice from an outside mortgage professional. A broker may have access to other lenders, mortgage products or debt-reduction strategies that are a better fit for your financial situation.

“My first thought is, try the branch. But if that doesn’t work, try a broker,” says Moss.

When preparing to talk with a broker, Moss says to expect a thorough, honest conversation and bring all the relevant information you can, including details and documentation regarding your income, the amount of your mortgage, the value of your home and your debt situation.

Ultimately, where you get mortgage help may not be as important as realizing you need it — and asking for it before your financial situation erodes further.

“The biggest problem is people procrastinating or not looking at [their situation] directly. They will know they’re stressed out, but they won’t address it,” Moss says.

“The key thing is finding out where you stand and then finding out the options from there.”