Canadian Mortgage Charter | Borrower Rights Explained

Q: What is the Canadian Mortgage Charter?

The Canadian Mortgage Charter is a set of principles and commitments announced by the fédéral government in November 2023. It establishes expectations for fédéral lenders to protect mortgage borrowers, particularly regarding communication, payment flexibility, and relief measures in cases of financial hardship.

Q: Is the Mortgage Charter a law?

No, the Charter is not a standalone law in the legislative sense. Its provisions are implemented through OSFI guidelines, mortgage insurer conditions (CMHC, Sagen, Canada Guaranty), and voluntary commitments from financial institutions. Some elements have, however, been incorporated into formal regulatory changes.

Q: What are the rights of borrowers in financial difficulty?

The Charter provides that borrowers in financial difficulty have the right to contact their lender without penalty, obtain adapted payment options (reduced payments, temporary amortization extension), and not face foreclosure proceedings without the lender first exploring alternative solutions.

Q: Does the stress test exemption at renewal come from the Charter?

Yes. One of the Charter's flagship measures is the stress test exemption for borrowers switching lenders at renewal. This measure, confirmed through regulatory changes in 2024, allows borrowers to freely shop their renewal without being penalized by the qualifying test.

Q: Does the Charter apply to Desjardins caisses in Quebec?

Desjardins caisses are regulated by Quebec's AMF rather than the fédéral OSFI. However, Desjardins has announced that it would adopt the Charter's principles voluntarily. Additionally, the Civil Code of Quebec already provides borrower protections regarding repayment delays (art. 2778 CCQ) and mortgage procedures.

RefinancePro.club

The Canadian Mortgage Charter: Protecting Borrowers

Announced in the Fall Economic Statement 2023, the Canadian Mortgage Charter represents the fédéral government's response to the financial pressure experienced by Canadian households in a context of rapid interest rate increases between 2022 and 2024. While it does not constitute standalone legislation, the Charter establishes a framework of clear expectations for federally regulated financial institutions, reinforced by OSFI guidelines and mortgage insurer policies.

Key Provisions of the Charter

Right to contact the lender without penalty in cases of anticipated or actual financial hardship
Obligation for lenders to propose adapted relief measures before initiating collection proceedings
Ability to make lump-sum payments or increase regular payments to reduce an extended amortization, without additional fees
Exemption from the mortgage stress test when switching lenders at renewal
Obligation for proactive communication from lenders to borrowers whose loan conditions change significantly
Prohibition on charging interest on interest (compound interest on arrears) in certain hardship situations

Context: The Mortgage Renewal Crisis

The Charter was developed in a context where millions of Canadians faced the renewal of mortgages taken out between 2020 and 2022 at historically low rates (often between 1.5% and 2.5%) to significantly higher rates (between 4.5% and 6%). For many households, this increase represented a 30% to 60% jump in monthly payments. The Bank of Canada and OSFI estimated that the wave of renewals between 2025 and 2026 constitutes a systemic risk to the country's financial stability.

Specific Measures for Extended Amortizations

During the high-rate period, several lenders extended the amortization period of certain variable-rate mortgages with fixed payments beyond the initial 25 or 30 years, creating what is known as negative amortization. The Charter requires lenders to clearly communicate this situation to borrowers and offer mechanisms to return to the normal amortization, including increasing payments or making additional payments, without fees. The lender must also provide a plan to restore the original amortization at the next renewal.

Implications for Mortgage Brokers in Quebec

Mortgage brokers in Quebec operate in a doubly regulated environment: federally by OSFI for institutions under its jurisdiction and provincially by the AMF under the LDPSF. The Mortgage Charter adds a layer of protection for clients of fédéral institutions. Brokers must understand these measures to support borrowers in difficulty, explain their rights, and help them negotiate favourable terms with their current lender or find a better offer at renewal. The stress test exemption at renewal is particularly advantageous for brokers, as it facilitates client mobility between lenders and promotes competition.

Complementary Protections Under Quebec Law

In Quebec, the Civil Code (CCQ) provides additional protections for mortgage borrowers. Article 2778 CCQ grants borrowers a 60-day period to remedy a default before a lender can exercise their hypothecary rights. Article 2779 CCQ requires 20 days' notice before exercising a hypothecary remedy. These provisions, combined with the fédéral Charter measures, provide a substantial safety net for Quebec borrowers in difficulty. Brokers must know these protections to adequately advise their clients.

The 2025-2026 Renewal Wave: A Critical Challenge

The Bank of Canada and OSFI have identified the massive 2025-2026 mortgage renewal wave as a potential systemic risk to the country's financial stability. Approximately 2.2 million mortgages taken out during the 2020-2022 low-rate period will mature during this time. For many of these borrowers, the transition from a 1.5-2.5% rate to a 4.0-5.5% rate represents a considerable payment shock. The Canadian Mortgage Charter, with its protection measures and the stress test exemption at renewal, specifically aims to ease this transition. Quebec mortgage brokers are on the front lines of this challenge: they must proactively contact clients approaching renewal, compare offers from multiple lenders (facilitated by the test exemption), and negotiate the best possible conditions to mitigate payment shock. This is a major opportunity for brokers to demonstrate their value and retain clients through this difficult transition period.