E#254 - The Endless Mortgage Amortization! 

These notes were taken from the FCAC guideline to the FRFI’s of the country, what do those abbreviations mean? We will get into all of that! In my opinion this all revolves around the 836 day secret……. What is in 836 days?? We will go into this crucial detail at the end of this post. 

Released last Wednesday were the new guidelines to lenders aimed to protect mortgage holders from facing high borrowing costs or who are at risk of defaulting on their loans. These guidelines are what we are doing to get into today! 

You may have seen Chrystia Freeland touch on this at the tail end of her grocery rebate announcement last week & this was also highlighted in the Spring budget from the Liberal Government.

You may have also seen the following:

Reuters (July 5 2023) - Canadas Financial watchdog releases guidelines to give mortgage holders tailored support-       2/3 of mortgage holders are having troubles meeting financial commitments.

-       People are faced with having to increase their monthly contribution or extend amortization

-       Possibly skipping payments or extending amortization offered by banks already  

What are we talking about today:
The FCAC (Financial Consumer Agency of Canada) has developed a “guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances” to set out its expectations for federally regulated financial institutions to contribute to the protection of consumers of financial products by providing tailored support to consumers at risk.
Meanings you will need to know for this post and if you watch the news in the coming months:

-       FCAC (Financial Consumer Agency of Canada) : financial watch-dog 

-       FRFI’s (Federally Regulated Financial Institutions / BANKS). 

-       Negative Amortization: occurs when a customer with variable-rate mortgage & fixed payments are no longer paying enough to cover the interest on their payments. The interest accrues + principal & increases the total amount owing.

-       Contribute to the protection of consumers of financial products & services (Mortgages) by providing tailored support to consumers at risk.

-       Person with existing residential mortgage on their principal residence who are experiencing severe financial stress, as a result of exceptional circumstance & at risk of mortgage default.

-       Circumstances include the combined effects of high household debt & rapid increase in interest rates & increased cost of living. FCAC expects an FRFI (BANK) to support consumers risk including:

-       Those whose payments on Variable-Rate mortgages fluctuate with interest rates (variable payments) and whose payments have increased materially.

-       Those with fixed payments on variable rate mortgages who have seen materially larger portion (or all) of their payments allocated towards the increased interest costs or who may be facing negative amortization.

-       Those with fixed rate mortgages reaching near-term maturity who may be facing a material increase in payments. 

-       Waiving prepayment penalties on lump sum payments / to avoid neg-AM / property sale

-       Waiving internal fees and costs

-       Not charging interest on interest (resulting from negative amortization) ???   

      - what happens if interest payments alone are larger than monthly fixed-payments ?? 

      - no further interest over the fixed payment amount is owed???

      - then principal payment stays owed & amortization builds

-       FRFI (BANKS) will not offer less advantageous rate @ renewal based on consumer’s inabilities. 

-       At risk consumers credit report does not reflect a late payment or delinquency (not effected)

-       when amortization period extension is in order, they try to structure for the shortest amount of time possible.

-       Make sure Amortization period is reasonable.

-       Include info about options to restore amortization to its original period.

-       Include assessment & communication of the potential long-term negative financial implications of this change. 

*** Communicate all of this in a manner that is clear, simple & not misleading *** 

What is all of this going to do to the market?

-       Keep inventory low

-       Keep prices high

-       Proving more reasons for people who typically would, to not put their properties on the market…. 

Good Thing? Bad thing? Just another fabricated market environment…   

-       The 45th Canadian federal election takes place on or before October 20 2025 (836 days) !!!

-       A beautiful protection against mortgage default numbers ruining the next federal election for the liberals on top of all other currency/inflation related issues + skyrocketing housing costs that they have done nothing about etc…. 

We now have a 5% policy interest rate

We now have 3.4% CPI 

What have we seen with Mortgage rates since they began increasing March 2022:

- 10 increases since march 2022

- 15 months of increases so far

- Apparently it takes 6 – 18 months for increases to work their way out into the economy…

Has the Federal Government over-tightened? I definitely believe so! 

A funny & very telling interest rate headline from 

CTV news yesterday (July 11th):

CTV interview Amine Yalnizyan – senior economist for Canadian centre for policy alternative“Rate hike is coming and the goal is to hurt people”

- Of course the deliberate use of the interest rate increase is to hinder people from spending money & in turn bringing the economy down with the desired result of softening inflation...

That is all I have for you on this topic today, feel free to watch the full video below and comment to your hearts content!Thank you for your attention and have a great day!!