In an exclusive interview with The Globe and Mail on Friday, Peter Routledge, the head of the Office of the Superintendent of Financial Institutions , said that borrowers with mortgages in which payments are not high enough to cover theportion of the loan could experience a “shock” in significantly higher payments in the years ahead.
“If you look at the boom in mortgage lending through 2021 and 2022, we would have preferred lower allocation to that [variable-rate] product. The system would be a little bit healthier if that product was a little less prevalent,” Mr. Routledge said. The Financial Consumer Agency of Canada is set to release guidelines next week on how it expects federally regulated financial institutions to support mortgage borrowers that are under severe financial stress. OSFI contributed to the development of the policies.
Borrowers eventually reach a trigger rate that requires them to make higher payments to continue reducing the size of the mortgage. But Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and Bank of Montreal offer products that permit borrowers to pass the trigger rate while continuing to make the same payments – even if they don’t cover the full amount of the interest owed, up to a certain threshold.
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