Canadian Banks Are Extending Amortizations Over 35 Years To Avoid Defaults

What’s the secret to Canada’s remarkably low delinquencies, despite soaring interest rates? Never paying off those super-sized mortgages, apparently. Filings from Canada’s Big Six banks show a big share of mortgages had remaining amortizations of 30 years or longer in Q1 2023. Most of the Big Six reported at least a quarter of their portfolio had at least 30 years of payments remaining. Just last year, the share was virtually non-existent. 

Canada’s Big Six Banks Suddenly Have A Lot of Mortgages With Long Remaining Terms

More than half of Big Six banks have a large share of mortgages with 30 or more years to go. Topping the list was BMO, with nearly a third (32.4%) of their portfolio having 30 years or more remaining as of Q1 2023. Not far behind was CIBC (30.0% of its portfolio), TD (29.3%), and RBC (27%).

It’s worth emphasizing that these aren’t mortgages with 30 year terms. They’re mortgages with at least 30 years of repayment left. Many with significantly more, but we’ll come back to that. 

Before we do, it’s important to understand this isn’t a problem seen at all banks. The share at Scotiabank (1.5%), and National Bank (1%) remain similar to any other year. At the very least, this tells us it’s not a widespread banking issue but one at those specific banks. 

Even Interest Only Mortgages Might Have Been Too Much For Canadians

How the heck do you even get a mortgage that long? It typically requires a speciality product to obtain a loan that long. The answer is negative amortization, and how the lenders are trying to avoid it with borrowers that bought too much house.

Most of Canada’s variable rate mortgages have a fixed monthly payment. This means borrowers get the predictability month-to-month but the amount applied to principal varies. If interest falls, more is applied to the mortgage principal and less towards interest. It’s generally what’s happened over the 30 years prior to 2021, and is a pleasant surprise. Borrowers renewing tend to find out they repaid more than they thought. Success.

The opposite is also true—rising rates mean less towards principal, and more to interest. If rates rise sharply, that can mean the borrower isn’t paying enough to cover interest. This is negative amortization, where the length of repayment is extended. Anyone can afford anything on a long enough timeline, but it comes at a big interest cost. That’s a sacrifice some are willing to make to manage their repayment schedule.

Canadian Mortgage Borrowers Are Seeking Lower Payments, Longer Terms

The maximum amortization is typically 35 years, but apparently banks don’t think that’s not enough. A significant share of the above banks’ portfolios had at least 35 years left. Over a quarter (27.4%) of TD’s Canadian residential portfolio have amortizations of at least 35 years left in Q1. Not far behind are CIBC (27%), and RBC (26%). BMO didn’t break down amortizations for more than 30 years. 

A Canadian bank notifies a borrower they have 72 years left to pay off their mortgage. Source: Twitter.

Long Mortgage Terms Were Nearly Non-Existent

One only has to look at the same period a year before to realize how unusual this situation is. Only three banks had amortizations longer than 30 years in Q1 2022—Scotiabank (1.4%), National Bank (1.3%), and TD (0.3%). Seeing 2 points would have been alarming, but over ¼ of mortgages at some banks is barely triggering a reaction. 

Delinquency rates might remain low, but that doesn’t mean the country is in the clear. Housing has already diverted a significant share of capital from the “productive” economy. An economic slowdown at the expense of more debt only gets worse if the repayment of that debt is extended.

45 Comments

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  • Kate 9 months ago

    Can any one explain this insanity ?
    This is debt slavery that is all.
    This activity must be illigal.

    • Yusef 9 months ago

      Not really illegal. They’ll just tell people to keep renewing at 35 years or whatever to keep the payment at a level the borrower wants to pay.

      I intentionally say “wants to pay” because people were stress tested for close to the current rate and they aren’t pushed to that limit.

    • pw 9 months ago

      I’m guessing these are virtually all variable rate mortgages (like the one in the photo in the article). Basically monthly payments at most banks are fixed, so when interest rates increase enough (but not quite enough to hit the trigger rate) the amount going to principal drops to almost nothing causing a super long repayment period.

      It also seems to line up with Scotia not having this issue, since they have variable monthly payments on at least some of their variable rate mortgages.

    • jim 9 months ago

      A negative amortization loan is one in which unpaid interest is added to the balance of unpaid principal.

      • Brent Taylor 9 months ago

        “The difference gets tacked on to the principle” – Tony Soprano

    • Pascal Ilboudo 9 months ago

      No it isn’t. At some point it will become a collective burden. So all the country will suffer, not just borrowers. The debt will just get wiped out.

    • Carl King 9 months ago

      The alternative is giving up your home. Which is worse?

  • Gerald Haw 9 months ago

    A country of millionaires that need 77 years to pay off a bungalow. What a marvelous time we live in! LMAO

    • Marek Gronowski 9 months ago

      I love like they say your intrest is before 2% and now 5% when in reality if you buy house with 1milion mortgage at the and the house will generally cost you 2 milion with intrest and today even more then 2 milion so basicly Bank rip you with 100 %intrest and that should be illegal

  • Trader Jim 9 months ago

    We’re so much better than the US. They had interest only mortgages, and it was totally… oh, I see.

  • GTA Landlord 9 months ago

    Long story short they don’t want to rock the boat and the regulator is letting them get away with murder and pretending this is covid related, and not the political morons trying to inflate their assets while crashing the whole country.

    Canada’s banking system used to be one of the best in the world because its bankers were responsible and managed risk well. Now it’s clear they don’t have to manage risk, because the government will ensure there’s zero reason to mitigate it.

  • Ahmed 9 months ago

    This is the real reason they drove inflation, to reduce the real burden of these loans without causing a loss. Great plan, it only marginalizes the poor and young since they don’t have assets to adjust to. But we’re not thinking about that, we’re just looking at rent cheques coming through our airport every month.

    • Jim 9 months ago

      We should all withdrawal all of our money from the banks on the same day and bankrupt the banks. Then maybe they’ll think twice before raising interest rates. They say it’s to control inflation but we all know that it’s to fatten there wallets.

      • Darryl Vanacker 9 months ago

        It’s the act of lowering interest rates that HAVE fattened their wallets. Asset inflation has been very prevalent for a couple decades now…getting worse and worse.

    • Noah Liguori 9 months ago

      This is their answer to increased interest rates to avoid defaults? First I don’t think it will make that much difference to sustainable mortgages. Tbe low interest rates for 15 or more years was one cause of higher house prices, along with a massive move to two household incomes and some foreign buyer influence (in GTA and Vancouver). This means many are financing like 500-800 K at triple the interest. So on a 18-20 yr fixed now at triple the interest (100/ mo on every 100K borrowed, so $2400 more per month in interest say). Longer amortization just drags out an unsustainable situation even longer.

    • LT 9 months ago

      Thank you Canada for refusing to do what needs to be done to being housing back to affordable levels. Yes, keep protecting the overextended and keep this insane economy going by continuing to support housing as an investment rather then a basic human need

  • John A McDonald 9 months ago

    Government interference. Thank You Christy…..such a great non finance, finance minister. Real estate has become to big to fail in Canada. Therefore the market cannot correct itself. So much for affordable housing in Canada 🇨🇦. Governments will do anything to stay in power. Unlike Mulroney GST introduction, in which debt was high. They did the right thing and introduced the GST, knowing they would lose power. Chretien liberals kept GST in place, although promising to remove it once debt was balanced. However another government lie. Even with GST the current liberal government just keeps expanding spending. Budgets, what are those…… Canada is laughing stock of the world. Yet Maritimes, Quebec, and Toronto, Vancouver keep these idiots in power.

  • Financial Journalist 9 months ago

    This is better than forcing people out of their homes. Remember people — they folks who are taking longer mortgages are not the rich people (who don’t have to lower their monthly payments) it is the poorer (comparatively) who need help. Do you want to see a young couple with a baby in a small condo lose their home? And by the way, if they rented that same condo they would pay more and not accumulate equity. If they wish to shorten their mortgage later, they just go to the bank and do that. Or put down lump sum payments. This policy is not forced. It is the homeowner’s choice. It is a compassionate way of getting through these strange times.

    • Bob Vila 9 months ago

      It is also the investors who leveraged too much using variable rate and poisoned this system. If only the process was selective to those who purchased homes as end-users instead of flippers and speculators. But it is not… Financial Journalist with no critical thinking skills.

    • Darryl Vanacker 9 months ago

      Almost all housing is cash flow negative in Southern Ontario….so no, its not clear they would pay more renting.

      It is painful for a heroine addict to get clean as well…..but it’s what is needed for long term health.

  • Paula Virany 9 months ago

    I am a financial journalist who posted a comment that explains how this works. Shame on Better Dwelling for taking it down.

    • Smarter Than A "Financial Journalist" 9 months ago

      A financial journalist that doesn’t understand how caching works. No wonder the country’s economy is in the crapper. Your browser has a cache, genius.

      • Fazid 9 months ago

        Why would better dwelling publish this article and then steal my F5 button thus preventing me from refreshing? Shame on them!

        The number of functionally illiterate journalists in Canada is worse than its housing crisis. Or probably the reason we have a housing crisis.

  • Abraham 9 months ago

    How are the banks absorbing the negative cashflow shock Stephen? Their assets (mortgages) are generating less cash month on month than expected, and their liabilities (i.e. deposits) are costing more due to interest rates.

    On top of that with around 500B of mortgages on the books that means roughly what 100-150b are generating far less cash than expected… thats a lot….

    • Bob Vila 9 months ago

      Canadian banks are an oligopoly and engage in soft price setting (interest rates provided to the public on savings accounts are not competitive). So they don’t have to worry about treasuries from years ago only yielding 1-2% interest because it is still more than they offer their depositors. Look at their short term ‘promotions’ now trying to keep their smart customers from fleeing to better rates of return.

      They don’t lose much on these mortgages unless FCAC agrees that the banks cannot charge interest on the re-compounded interest added back to principle in the negative amortizations. People still paying is much better than trying to forced sell a house and dropping the market value of housing therefore dropping the value of all future forced sales (and there would be many by now if not for this intervention).

      • David 9 months ago

        Banks make more money because interest is higher. Why are the bank stocks dropping? As long as their clients don’t stop payment, banks are making more money than before.

  • Kim 9 months ago

    Basically what these homeowners have is a rental that they can live in for as long as they want as long as they keep making the monthly payments.
    I’m sure many of these people have 50 year amortizations right now.

  • Bob Vila 9 months ago

    And when will these abnormal loans (cough cough subprime) be adjusted to market value?

    • Kim 9 months ago

      I’m thinking it’s going to take about 15 years.
      All these mortgages are underwater right now as it is.
      The banks can go in and take these properties back but there’s going to be so many of them they can do it gradually over time and pick them off one after the other.
      Nobody in this situation is safe.

    • Kate 9 months ago

      I think never.

    • David Todtman 9 months ago

      Bob, you nailed it I think. These are subprime loans.

  • Chris 9 months ago

    Search for MillennialMoron on tiktok. It sheds a little light on the insane housing market in Canada. No matter how bad you think it is, this will make you feel worse.

  • Freddy 9 months ago

    Why is our finance minister is trying to push more risks onto the banking system by allowing 50 year mortgages, are they trying to create a systemic banking crisis?

    The risk is supposed to be on CMHC and the other two private companies that insure mortgages.

    These insane mortgages only exist because they were underwritten by the insurers.

  • Rudy Haugeneder 9 months ago

    Not unexpected in the current and recent financial climate. It’s why small condos are selling so well even though most people will ultimately hate them until they near retirement age when housing space (pun intended) needs shrink due to a variety of reasons, including the physical and mental size of seniors which too is not unexpected. Unfortunately these condo subdivisions also over time become quasi-ghettos nobody wants, regardless of the changing demographics due to ageing and huge immigration. Be warned, as well, that this tends to lead to racial disparities and potential vast social unrest, based on recent Sapiens history.

  • Serge 9 months ago

    This is logical development. I was actually talking about this few weeks ago before news came up. Because there is only two options. Either prices fall at least 50% or more or borrowers extend their mortgages terms. By any measure it means Canada has no government that really governs. Banks and financial monopolies are running things as they wish and they trying to keep prices as high as possible and basically they have cancelled markets everywhere. What this means for us? Long term it means renting beds or half beds or going into multi generational debt slavery. It also means very angry people. Those who do not see the trend everywhere should realize it is either us or them. The time of so called “prosperity” and capitalism usefulness and American, Canadian and so forth dreams are over. In my case thankfully we have got fully paid off 5 bed rooms house but not in Canada. If things persist, once we get retired and kids graduate it is bye bye Canada. There is nothing to look for here anymore.

  • Rene Nielson 9 months ago

    The ‘amortization stretch’ is just kicking the can down the road. But, there are so many other segments of the economy, and add in the government itself, that are all kicking cans, it will soon be a very crowded intersection with a lot of tin and no recycling capacity.

  • Nick 9 months ago

    The last information reported by TD was 1.7% of mortgages had over 30 years remaining. So I think this information needs to be double checked.

    • Terrance 9 months ago

      Incorrect. Double checked on Terminal and it’s right there in the report to shareholders. You must be looking at the wrong year, it’s 2023.

      Extensions were only permitted mid-last year from the regulator, so looking at the start of 2022 you might see something like 1.7%.

  • John 9 months ago

    What kind of person pays 6000$ as monthly payment for their mortgage? This is nuts. Just chuck the house and find a cheaper place to live. There are far better ways to use money.

  • J 9 months ago

    5,321,705.48 at the end of the 72.7mo term. No wonder realtors are screaming for interest rates to drop to 0% again.

    The people who signed this loan must be smoking the hopium for a pivot if they’re not walking away from this loan and declaring bankruptcy.

    • Kim 9 months ago

      When you sit back and think abot it, that may be the most logical solution.

  • John Smith 9 months ago

    Employee’s freedom of mobility (ability to move for better work) cost employers (big corporations) lots of money (training/re-training for new place of work). …. Really lots of money. Owning and selling a house is very expensive (taxes, upkeep and commissions). House together with a new shiny 4×4 pickup truck anchors employees in place and restricts their freedom of mobility. After paying off the house and the truck average family might have 0 net at the end of the month. This is modern slave…

  • Frank Matchett 9 months ago

    There was a time I rationalized that since most Canadians were prior to the new stress test on mortgage approvals, within 2-3 percent in interest rate increase of potentially losing their home. I felt that banks could not in any good conscience allow rates to increase

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