Federal Budget - what did it do for mortgage payment stress?
We all know that both fixed and variable mortgage rates have risen significantly in the last year. Anyone renewing a fixed rate mortgage is now suffering the effects, and variable rate mortgage borrowers have been suffering for many months.
It's noteworthy that the Bank of Canada has indicated that variable rate mortgages now make up one-third of total outstanding mortgage debt nationally, up from about 20% at the end of 2019. Even those that locked into a low fixed rate in 2018/19 and facing renewal this year or next are likely entering into a new world of increased payments.
Did the government address this in the budget? Partly, yes. How? By creating a new “code of conduct”.
The code of conduct announced 28th March is meant to ensure federally regulated financial institutions will provide "fair and equitable access" to mortgage relief measures for people struggling to stay in their homes because of elevated interest rates.
It would protect these people from unnecessary penalties, internal bank fees, or interest charges and allow them to extend amortizations beyond 25 years, adjust payment schedules and make lump-sum payments.
Reducing penalties for borrowers that have to break their mortgages is important. Lenders have iron-clad contracts which they enforce; let’s see if they reduce penalties by choice.
How does increasing amortization help? This simply means spreading the mortgage payback period over a longer period of time, so mortgage payments don’t increase as much when borrowers renew or refinance.
Does the Government Care?
Patently, the government wants to keep people in their homes, and these measures are a step in the right direction. How much mortgage lenders come up with solutions in line with the code of conduct is key. We’ll know more when the lenders start issuing details.
As your mortgage broker, I’m always in your corner. Don’t hesitate to reach out to me for support, advice and encouragement. I’m a home owner and I have a variable rate mortgage, so I understand the pressure you may be under. Remember, we’re all in this together.