The Financial Consumer Agency of Canada (FCAC) warns banks and their borrowing customers against the growing temptation to use longer amortization periods as a mortgage burden relief measure.
In his Guideline on Existing Consumer Mortgages in Exceptional Circumstancesthe Agency reminded financial institutions yesterday that it expects them to provide “personalized support” to mortgage holders who are in serious financial difficulty.
Recent research has shown that over 35% of Canadians currently have a mortgage. Of the number, two thirds would struggle to meet their financial commitments, an increase of more than 30% compared to August 2020.
So much so that 39.5% of homeowners still struggling with a mortgage today would have no choice but to borrow to cover their daily expenses. Three years ago, at the height of the pandemic-related slowdown, only 27.3% of owners were in such a situation.
Concerned, FCAC Commissioner Judith Robertson appealed to financial institutions to work “proactively with their subprime mortgage customers” to protect them and offer them solutions tailored to their situation.
increasingly popular
Among these solutions is the extension of the amortization period of mortgage loans. Although this option currently concerns barely more than one in ten clients, Charles-Antoine Boudreau, mortgage broker at the Planiprêt brokerage firm, nevertheless expects it to become increasingly popular.
The latter explains that even if the banks generally readily accept such a request, this solution is rarely adopted lightly by the borrower. It may be justified in certain rare cases where a consumer finds himself struggling with very high-interest debt [paiement d’une voiture par exemple] which he wishes to dispose of quickly. But in most cases, he says, this is a solution to a need for relief that most prefer to avoid.
The Agency is careful not to condemn the use of mortgages longer than the usual 25 years. Its Assistant Commissioner, Monitoring and Enforcement, Frank Lofranco, for example, dodged a question asking him to comment on loans, with repayments over a period of 30 years and more.
In times deemed “exceptional”, as at present, the federal body is content to advise an extension of the amortization period “as short as possible”.
Many other solutions
The FCAC also suggests that banks use a host of alternative mortgage relief measures for their customers in difficulty. These include waiving prepayment penalties, waiving internal fees and costs, and not charging interest on interest, all of which could ease the burden on borrowers.
On Tuesday, the agency Ratehub exposed the impact of the extension of the amortization period on a mortgage loan of $500,000 at a rate of 5.50%. Over 25 years, the interest paid would amount to $448,196, compared to $556,153 for a loan amortized over 30 years.