A third of all mortgages in large bank portfolios now have amortization periods in excess of 30 years, up from zero just over a year ago.
Many borrowers will soon be forced to pay much more per month due to repeated interest rate hikes by the Bank of Canada.
The share of mortgages with “very long” amortization periods, over 30 years, has rapidly increased to one-third of all mortgages in the portfolios of major Canadian banks, and this number will continue to grow.
Never seen
Yet just over a year ago, Bank of Montreal, CIBC and RBC still had no mortgages with amortization periods exceeding 30 years, the Globe and mail.
“At RBC alone there are 80,000 people who have variable rate mortgages, with fixed installments and who are ready for the trigger rate. They are especially the ones who are in trouble right now,” says Stéphane Bruyère, mortgage broker at Mortgage Architects.
For adjustable-rate mortgage holders with fixed monthly payments, each rate increase by the Bank of Canada increases the amount of interest owed. To keep your monthly payments stable, the amortization periods, i.e. the time it takes to repay your loans, are automatically extended.
Trigger rate for different
But another category of borrowers is even more at risk: those who reach the famous “trigger rate”. This situation arises when a borrower’s monthly payment not only covers the interest only (and not the principal), but it is no longer even enough to pay the interest!
When this situation arises, some borrowers are forced to increase their monthly payment. In a recent publication, the Bank of Canada says that about half of both adjustable and fixed-rate mortgages have reached their “trigger rate” as of October 2022.
And with markets expecting variable rate mortgage rates to rise another “50 basis points” by mid-2023, that’s another 15% of fixed-rate variable-rate mortgages that could hit the trigger rate, bringing the total at 65% (or almost 17% of all mortgages).
Fixed rates are also a concern
However, fixed rate borrowers are not out of the woods. When they have to renew the loan, the new suggested rates could result in much higher payments.
“Those who have a fixed rate mortgage may think they have no problems. But they may have one. What will happen when they renew the mortgage? If the payment has to increase by 50% or 60%, when most people are used to paying much less, some will be surprised,” warns Stéphane Bruyère.
No more transfers to the BN
Furthermore, the National Bank has decided to no longer allow its customers to transfer their existing mortgages to a new property, according to the Globe and mail.
Customers hoping to move to a new home will not be able to maintain their low interest rate and will have to renegotiate.
Far fewer new mortgages than a year ago
Monthly mortgage volume, year-over-year change *
- All of Quebec: -44%
- Montreal: -60%
- laval : -41%
- National Capital Region: -26%
*Change from November 2021 to November 2022
Source: iTerram
