HomeMortgageMortgage lending among top financial system risks, warns OSFI

Mortgage lending among top financial system risks, warns OSFI

Of “specific concern”, OSFI said, are variable-rate mortgages with fixed payments – particularly those which are already in negative amortization.

Since the mortgage term for those products does not change until refinancing takes place, the regulator said borrowers on uninsured variable-rate fixed-payment mortgages would need to deal with higher outstanding principal balances and a potentially sizeable payment shock.

OSFI underlined its efforts to introduce loan-to-income limits for uninsured mortgages to prevent swelling numbers of highly leveraged borrowers, and said it was focused on ensuring that institutions “actively assess the risks posed by variable rate mortgages with fixed payments.”

With household debt rising, the regulator emphasized the potential for a weakening in the labour market to “dramatically” change the landscape for Canadian households.

“There are signs higher mortgage payments are taking a larger part of some households’ income, leading to increases in the number of borrowers not being able to make payments on other loans and debts,” it said.

Read more at www.mpamag.com

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