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Banking regulator working with lenders to stamp out ultra-long mortgages
9/27/2023 | Posted in Mortgage News by Paul DeAdder | Back to Main Blog Page
The Office of the Superintendent of Financial Institutions (OSFI) has announced that it is now working with lenders to rein in the emerging phenomenon of dramatically extended mortgages.
Amid mounting costs, a growing number of homeowners are opting to significantly extend their mortgage amortization periods to cope. Canadian banks now have approximately $250 billion in mortgages with repayment terms set at 35 years or longer, said Peter Routledge, Superintendent of Financial Institutions.
Routledge said that OSFI has initiated its consultations on residential mortgages earlier this year, with the regulator expected to release the first draft of its proposed guidelines next month.
“I think both banks – financial institutions – and borrowers would be better off if the prevalence of this product was less, and we’re consulting and will have something out in October to discuss how we might address that, and put in place a little more regulatory oversight to make this product a little less prevalent,” Routledge told media earlier this week, as reported by Bloomberg News.
Routledge assured that the issue remains “manageable,” as the current $250-billion level is markedly lower than the $280 billion seen in early 2023.
CMHC sceptical of impact of ultra-long mortgages
Romy Bowers, president and CEO of Canada Mortgage and Housing Corporation, has recently warned that these extended amortizations will not improve housing affordability.
While Canadians have been labouring under progressively mounting costs over the past year, Bowers said that lengthy amortization periods, and the accompanying greater purchasing power, could then spur consumers into making more transactions – in the end making their monthly spending larger anyway.
“That just makes credit more available,” Bowers told The Canadian Press. “It lowers the monthly payment, but it actually increases the cost to the homeowner over time.”
“That seems like a quick fix. If you just have 30-year amortization, everyone’s mortgage payments will go down by $200 and they can actually afford the house, but if you’re in a supply-constrained market and that’s your solution, it’s not going to solve the problem in the long term.”
Source: Canadian Mortgage Professional
