Consumers have also elected to significantly extend their amortizations amid rate increases
A considerable number of Canadian homeowners are seeing their payments go solely towards their loans’ interest and not towards the principal amounts, according to Victor Tran, mortgage and real estate analyst at Ratesdotca.
Tran said that this has become especially apparent once the Bank of Canada began its unprecedented interest rate hike campaign in March 2022, as many consumers have elected to significantly extend their amortizations.
While longer amortization periods will make payments more manageable on a monthly basis, consumers will also have to pay more in interest, per the Financial Consumer Agency of Canada.
“I’ve had many clients with amortizations, that are 70, 80, even 90 years remaining, in the extreme cases, and that’s simply because their payments are not going towards any principal at all,” Tran said in an interview with BNN Bloomberg.
Tran is anticipating that the Office of the Superintendent of Financial Institutions (OSFI) will make some regulatory adjustments in response to the trend – particularly changes that will ensure mortgage holders actually pay toward the principal of their loans.
“It has been about a year now; I think it could have been done earlier,” Tran said. “But sooner or later, I think new rules will be implemented. Otherwise, we may have generational mortgages where these mortgages can be passed on to their kids, if the amortization stays at elevated levels at 70, 80, or even 90 years.”