Paying your mortgage when experiencing financial difficulties

Expectations for financial institutions

The Financial Consumer Agency of Canada (FCAC) has expectations for banks. FCAC expects banks to help individuals who may be struggling to pay their mortgages due to exceptional circumstances. These expectations also apply to other federally regulated financial institutions offering mortgages.

FCAC expects banks to provide you with tailored support if you:

• have an existing residential mortgage on your principal residence and
• are at risk of not keeping up with your regular payments

These expectations are described in FCAC’s Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances (Guideline). 

If you’re experiencing financial difficulties, contact your bank as soon as you can. A mortgage relief measure, or a combination of relief measures, may be appropriate for your circumstances.

Learn more about the Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances.

Exceptional circumstances

You may be facing financial difficulties due to exceptional circumstances.

Examples of exceptional circumstances include the combined effects of:

• high household debt
• increased cost of living
• rapid increases in interest rates

Rapid increases in interest rates may have a major impact on your finances.

This may be the case if your mortgage has a:

• fixed rate and is up for renewal, and you’re facing much higher payments
• variable rate and your payments are much higher
• variable rate with fixed payments, and you’ve reached, or expect to reach your trigger rate

The trigger rate is the interest rate at which your mortgage payment only covers interest costs. When you reach your trigger rate, none of your payment goes toward paying down the principal. This means that your payment does not cover the full amount of interest for that period.

When this happens, your bank will generally add the unpaid interest to the balance you owe on your mortgage. This brings your mortgage into negative amortization.

In cases of negative amortization, unpaid interest builds up and the total amount you owe will continue to increase. If you don’t take action, you’ll owe more money than you expected when you agreed to the mortgage. You could even owe more money than the value of your home over time.

Learn more about interest on mortgages.

Defaulting on your mortgage

You may be facing financial difficulties due to exceptional circumstances. This may reduce your ability to pay for your mortgage.

Mortgage default happens when you don’t follow the terms of your mortgage agreement, like missing a regular payment. When this happens, your bank has the legal right to recover the amount you owe them. This may eventually lead to the forced sale of your home.

Check the terms and conditions of your mortgage agreement for more information on mortgage default.

When you’re at risk of mortgage default, FCAC expects banks to provide you with tailored support.

Banks are expected to monitor for early signs of mortgage default.

They’re also expected to:

• establish criteria for offering mortgage relief measures
• proactively contact you if you’re at risk of mortgage default
• encourage you to reach out to them if you’re:
  • concerned you may not be able to pay for your mortgage
  • experiencing financial difficulties
• proactively provide you with access to mortgage relief measures based on your circumstances and financial needs
• provide you with information on mortgage relief measures so that you can make timely and informed decisions

At no additional cost to you, banks are also expected to:

• provide you with educational tools and resources to support informed financial decision-making
• encourage you to seek advice from trustworthy sources
• direct you to trustworthy support networks for information and advice on financial difficulties

Contact your bank or your federally regulated mortgage provider if you’re experiencing financial difficulties and think you’re at risk of mortgage default.

Understanding mortgage relief measures

Mortgage relief measures may help you if you’re at risk of mortgage default.

A mortgage relief measure, or a combination of relief measures, may be appropriate for your circumstances.

Banks are expected to:

• provide you with information and assistance
• make their relief measures easily accessible to you
• make sure that information regarding mortgage relief measures is easily available:
  • over the phone
  • online
  • in person

When offering mortgage relief measures, banks are expected to:

• conduct an assessment of the specific mortgage relief measures that you may wish to consider. This is to make sure that the mortgage relief measures are appropriate and tailored for you.
• make sure they treat you with a similar level of care and attention as others who are at risk of mortgage default
• be fair and equitable in their dealings with you
• offer similar mortgage relief measures to you as others with similar circumstances and needs

Learn more about mortgage relief measures.

Before you consent to a mortgage relief measure, your bank is expected to provide you with information. They must do so in a manner that is clear, simple, and not misleading.

This includes:

• the outstanding amount you owe on your original mortgage agreement, before the mortgage relief measure takes effect
• the impact of the mortgage relief measure on the total cost of your mortgage, in dollars
• the impact of the mortgage relief measure on your original amortization period
• your new payment amount, due date, and frequency
• your new interest rate and type. For example, if it’s fixed or variable
• the date on which the change will take effect

Banks need your express consent before you accept a mortgage relief measure.

Learn more about express consent for financial products and services.

Getting mortgage relief measures

If you’re at risk of mortgage default, your bank is expected to offer:

• a mortgage relief measure or
• a combination of relief measures

When that’s the case, your bank is expected to offer the most appropriate mortgage relief measures for you. They’re expected to do so as soon as possible.

If you’re at risk of mortgage default and you’re working with your bank to find a solution, they’re expected to offer temporary relief such as:

• waive prepayment penalties:
  • for a lump-sum payment when you’re making the payment to avoid negative amortization
  • when selling your primary residence
• waive internal fees or costs, for a limited period, when the relief measures starts
• avoid charging you interest on interest, for a limited period, in cases where relief measures result in negative amortization

You and your bank may agree to a mortgage relief measure that impacts your mortgage payments. As a result of this mortgage relief measure, your bank may agree that you miss payments. Your bank is expected to not report a missed payment to the credit bureaus. That’s the case if your bank has agreed that you can miss a payment as part of your mortgage relief measures.

Extended amortization period

As a mortgage relief measure, your bank may offer to extend your amortization period. Your amortization is the length of time it takes to pay your mortgage in full. Extending your amortization may add tens of thousands of dollars to the total cost of your mortgage.

When offering an extended amortization period, your bank is expected to develop a plan with you. This plan is for you to restore your amortization to the original period. They’re expected to develop this plan within a reasonable timeframe.

In this plan, your bank is expected to:

• make sure the total amortization period is reasonable
• offer an extension for the shortest period possible
• provide you with information about your options to restore the amortization to its original period

Your bank is also expected to make an assessment and communicate the potential long-term negative financial impacts to you.

Learn more about mortgage terms and amortization.

Selling your home

When circumstances change, your long-term financial well-being is an important consideration.

If you’re at risk of mortgage default and experiencing severe financial difficulty, selling your home may be an option. When that’s the case, your bank is expected to communicate the various considerations of selling your home. They’re expected to do so based on your circumstances and financial needs.

If you’re at risk of mortgage default and you sell your home, banks are also expected to provide temporary relief, such as waiving prepayment penalties.

Learn more about prepayment penalties.

Renewing your mortgage

If you’re at risk of mortgage default and you’re renewing your mortgage, your bank is expected to:

• make sure the terms and conditions of the renewal are appropriate for you and consider your circumstances and financial needs
• not offer you a less advantageous interest rate when you’re unable to:
  • adjust your current mortgage agreement
  • qualify with other mortgage lenders

Learn more about renewing your mortgage.

Related links

• Managing your money in challenging times
• Managing your money when interest rates rise
• Mortgages
• Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks