
The Financial Consumer Agency of Canada (FCAC) says its mortgage relief guideline helped Canadians save more than $4 million in pre-payment penalties for lump-sum payments to avoid negative amortization between July 5, 2023, and June 30, 2024.
In a report released Thursday, the agency said it also helped Canadians save more than $200,000 in waived fees and costs during that period.
“Our expectations are being met,” said Frank Lofranco, deputy commissioner of supervision and enforcement with FCAC, in an interview. “When we’re seeing penalties waived and fees waived in the range of $4 million and above, it tells us … relief measures are being put in place for mortgage holders facing severe financial stress.”
The FCAC released a guideline in June 2023 for federally regulated financial institutions to waive pre-payment penalties, as well as some interest charges and internal fees for clients at risk of mortgage default due to exceptional circumstances, such as those facing negative amortization or substantially increased payments in variable-rate mortgages.
All federally regulated financial institutions implemented the guideline, Lofranco said.
Of the about five million principal residence mortgages with federally regulated financial institutions, the number of at-risk accounts has increased for four consecutive quarters — from 29,557 at the end of the third quarter of 2023 to 35,556 at the end of the second quarter of this year.
This increase is primarily among mortgage holders with fixed-rate mortgages. Variable-rate mortgages with variable payments (VRMVP) had the highest proportion of at-risk accounts, followed by variable-rate mortgages with fixed payments (VRMFP).
When interest rates rise, as they did in 2023, VRMFPs are at risk of entering negative amortization. More than three in 10 (31%) were in negative amortization as of September 2023, but this had dropped to 18% by June 2024.
The drop in negative amortization came from mortgage holders changing payment amounts or making lump-sum payments, Lofranco said.
Financial institutions have reached out to more than 47,000 account holders, but not all of them required relief, the report noted. These institutions implemented more than 8,000 relief measures for principal residence mortgage accounts at risk by June 30, 2024, it added.
Some mortgage holders have their mortgage with a different financial institution from their daily banking accounts, so financial institutions may not have a complete financial picture until they speak with these mortgage holders, Lofranco noted.
In the same period, relief was refused by more than 5,000 mortgage holders who might have had access to other funds or received financial help from family and friends, the report said.
The mortgage relief guideline will remain in place, Lofranco said, and the FCAC will continue to monitor its implementation.