At RBC, BMO and CIBC, the percentage of mortgages with an amortization of more than 30 years recently doubled in a three-month span – one of the clearest indicators that stress is building on variable-rate mortgage holders
, the percentage of mortgages with an amortization of more than 30 years recently doubled in a three-month span, according to company filings. That is one of the clearest indicators that stress is building on variable-rate mortgage holders, who are increasingly paying more interest and less principal on their loans.
A larger proportion of mortgages with long amortizations gives an indication of the number of borrowers who could face significant hikes to monthly payments. In late August, CIBC executive Shawn Beber said his bank has $7-billion of variable-rate mortgages up for renewal in the next 12 months, but less than $20-million in balances with clients that the bank views as being at high risk of delinquency. A spokesman for the bank, Tom Wallis, said CIBC reaches out to clients facing payment shocks and gives them options that include “increasing their payment and/or converting to a fixed term at any time without penalty.
For variable-rate mortgages with constant monthly payments, the prime lending rate dictates how much of each payment goes toward paying down principal or interest costs. When prime goes up, more of the borrower’s monthly payment goes toward interest. And borrowers can only lengthen their amortization or change the loan’s core terms by refinancing it, which is akin to taking out a new loan: It requires the borrower to requalify and be stress-tested, proving they can make mortgage payments with an interest rate that is at least two percentage points higher than their actual mortgage rate.
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