Canada's financial regulator is urging lenders to tackle risks from mortgage extensions at the 'earliest opportunity' as many borrowers try to navigate higher mortgage costs after the Bank of Canada's surprise rate hike last week.
A realtor's sign stands outside a house for sale in Toronto, Ontario, Canada May 20, 2021. REUTERS/Chris Helgren ?/File Photo
Many major Canadian banks allowing holders of variable rate mortgages to extend their amortization period to keep their repayments at the same level, temporarily blunting the impact of higher borrowing costs but adding risks to borrowers later on. The regulator had warned in April that though the short-term fix to extend mortgage payment periods helped borrowers, it would keep them in debt for longer.
Desjardins analyst Royce Mendes noted that the big six Canadian banks had more than 20% of their mortgage portfolio with repayments greater than 30 years in the first quarter as a result of variable-rate loans that have become non-amortizing, up from roughly 2% of the mortgage portfolios the prior year.
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