Canadian Lenders Tackle Risk of Ultra-Long Mortgages

Discover how Canadian lenders are addressing the risk posed by ultra-long mortgages amidst the pandemic. Learn more about the measures being taken to safeguard the financial system. Take action now.

Canadian lenders are taking steps to address the risks associated with the rapid increase in mortgages during the pandemic, particularly ultra-long home loans. The country’s bank watchdog has noted that while this represents a “pocket of risk” to the financial system, progress is being made to mitigate these concerns.

Canadian Lenders Tackle Risk of Ultra-Long Mortgages | Financial System Alert

In a recent statement, the bank watchdog highlighted the potential dangers of variable-rate mortgages with fixed monthly payments, emphasizing the significant increase in interest payments that borrowers may face over time. This could result in amortization periods extending well beyond the standard 30 years, leading to higher monthly payments when it comes time to renew the mortgage.

Among the major lenders in Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, and Bank of Montreal are the only institutions that offer negatively amortizing mortgages. However, there has been a notable decrease in the issuance of these types of loans, with the combined total dropping by 27 per cent to $94 billion over the past six months.

While there are still concerns about the potential risks associated with ultra-long mortgages, the efforts of Canadian lenders to address these issues are a positive step towards ensuring the stability of the financial system. By reducing the availability of negatively amortizing mortgages, lenders are taking proactive measures to protect both borrowers and the overall economy.

The recent decline in ultra-long mortgages among major Canadian lenders is a positive development in addressing the risks posed by these types of loans. By taking steps to control the issuance of negatively amortizing mortgages, lenders are working to safeguard the financial system and protect borrowers from potential financial challenges in the future.