Skip to main content
Ratehub logo
Ratehub logo

New FCAC mortgage protection guidelines

What borrowers should know

This piece was originally published on July 11, 2023, and was updated on March 5, 2024. 

Some good news for mortgage borrowers facing payment challenges – new guidelines are now in place to ensure lenders will do what they can to help clients hang on to their mortgages as interest rates continue to rise.

On July 5th, the Financial Consumer Agency of Canada (FCAC) – the regulatory body that protects the rights and interests of consumers of financial products and services – released a slew of new guidelines designed to protect “at risk” mortgage borrowers.

Called Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, they spell out the agency’s expectations for how lenders will work with borrowers who are being squeezed by rapidly rising interest rates, and the solutions they can offer to prevent these clients from defaulting on their mortgage payments. The federal government first announced that these guidelines would be introduced in their 2023 Federal Budget back in March, when it became clear just how deeply borrowers were being impacted by rising interest rates.

According to the Guideline, “consumers at risk” refers to “natural persons with an existing residential mortgage loan on their principal residence who are experiencing severe financial stress, as a result of exceptional circumstances, and are at risk of mortgage default.”

“These exceptional circumstances include the current combined effects of high household indebtedness, the rapid increases in interest rates and the increased cost of living,” adds the guideline.

The fallout from rapidly rising mortgage rates

As the Bank of Canada has hiked its trend-setting interest rate a historic nine times between March 2022 and June 2023, the benchmark cost of borrowing has soared by 4.5%, from the pandemic low of 0.25%, to 4.75% today. As a result, variable mortgage rates have spiked – along with monthly payment obligations. To put things into perspective, a borrower taking out a five-year variable mortgage today would get a rate as low as 5.8%. That’s drastically higher than the rock-bottom 0.85% that was available at the start of 2022.

Check out the best current mortgage rates

Take 2 minutes to answer a few questions and discover the lowest rates available

This has caused considerable challenges for many borrowers, and particularly those who took out variable mortgages during the pandemic and who opted to stay on a fixed payment schedule. While their monthly payments have remained the same throughout this recent rate volatility, with each rate hike, less of their monthly payment goes toward their mortgage principal, and more toward interest.

This becomes an issue when rates rise to the extent that 100% of the payment is interest-only; referred to as hitting the “trigger rate”, borrowers must take action to return a portion of their payment to their principal, whether that be increasing their monthly payment, making a lump sum payment to reduce their overall mortgage size or – the most common approach – temporarily extending their overall amortization period to reduce the size of their monthly payment.

The Guidelines also point to borrowers who have fixed-rate mortgages who are close to coming up for renewal, and will be forced to renew at a rate much higher than their original term. While fixed mortgage rates are not directly influenced by the Bank of Canada’s hikes, resulting fluctuations in the bond market have caused lenders to materially increase the prices for their fixed-rate mortgages over the past year and a half; today’s lowest five-year fixed mortgage rate is currently 5.04%, compared to 2.34% available in January 2022. If you are a borrower whose mortgage is coming up for renewal, check out the video below with some helpful tips for renewing your mortgage in 2024. Then, keep reading for more information. 

What these new mortgage protections include

The FCAC wants to ensure lenders are “providing tailored support” to these at-risk borrowers, including those variable-rate borrowers on fixed payments who "have seen a materially larger portion (or all) of their payments allocated towards the increased interest costs or who may be facing negative amortization."

Under the Guideline, the FCAC expects banks to design its policies and procedures with consideration for all available mortgage relief measures “appropriate” for consumers at risk, including:

  • Proactive monitoring for, and identification of, early signs of financial stress
  • Establishing criteria for offering mortgage payment relief
  • Establish an assessment process to ensure appropriate relief measures are made available
  • The disclosure of information to the consumer to ensure express consent

Such relief measures include:

  • Waiving prepayment penalties in cases where borrowers make a lump sum payment to avoid negative amortization, or if they are forced to sell their home and break their mortgage
  • Waiving internal fees and costs for a limited period
  • Extending mortgage amortizations, with clear education on the long-term financial implications of doing so, along with a plan on how to restore it to its original period 
  • Not charging interest on interest in cases when mortgage relief measures result in negative amortization
  • Not offer a “less advantageous rate” at renewal time, if a client doesn’t have the ability to explore options at other lenders, due to their credit
  • That once relief measures are in place, the consumer’s risk credit report should not reflect a late payment or delinquency.

Read: 5 Tips for mortgage renewal time

It also specifies that when a borrowers’ mortgage amortization is extended, that it is done for "the shortest period possible," and "taking into consideration the ability for the consumer at risk to restore the amortization to the original period." This is of note as extending a mortgage’s amortization can exponentially increase the amount of interest a borrower will pay over the lifetime of their mortgage. According to a recent study by, bumping an amortization up by just five years, from 25 to 30, would increase the amount of interest paid by more than $100,000, to $556,153, from $448,196.

Read: Just how risky are longer mortgage amortizations?

What this means for borrowers

In reality, these guidelines are largely a formality; Canada’s lenders have already put many of these measures into place, with the number of extra-long amortizations ballooning over the past year, accounting for upwards of 30% of the mortgage books at some of the nation’s biggest banks. 

However, the new FCAC mortgage guidelines establish the expectation that lenders will work in the best interest of clients facing mortgage payment challenges, will ensure that they’re informed of their options and their financial implications, and won’t take advantage of borrowers in these scenarios. They’ll also provide a recourse for enforcement if that’s not found to be the case.

In short, it’s a new layer of protection for borrowers facing a volatile interest rate environment, with more onus on lenders to ensure clients understand their options – and their consequences.

Also read: