OTTAWA -- Canada's banking regulator has launched consultations on proposed changes to mortgage guidelines to address risks related to borrowers with growing balances.
The Office of the Superintendent of Financial Institutions wants to address risks related to rising balances, which can happen in cases such as when fixed payments on variable rate mortgages aren't enough to cover the interest portion.
The proposal comes after a rapid rise in interest rates from 0.25 per cent early last year to 4.75 per cent as of last month that have put strain on borrowers and raised concerns over risks to the mortgage market.
The regulator's proposal would formalize that mortgages with a growing balance and a loan-to-value ratio above 65 per cent do not meet its expectations related to B-20 mortgage guidelines.
For the mortgage insurer capital adequacy test, it would allow some mortgages to grow to 105 per cent of the original loan before a lender takes remedial action, up from the current 100 per cent cap.
The launch of consultations, which are set to run until Sept. 1, come a day ahead of the Bank of Canada's latest rate decision that forecasters expect to see another quarter of a percentage point rise to five per cent.
This report by The Canadian Press was first published July 11, 2023.
