OSFI contributed to the development of the policies. 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. Routledge said that through its public consultation, which closed in April, OSFI is considering those proposals and other measures as a way of “counterbalancing that tendency in a low-interest-rate environment for consumers and banks to choose variable-rate mortgages with fixed payments.” The rules would also make it harder for homebuyers to qualify for a mortgage, squeezing lending at a time when the steep climb in interest rates has dampened loan growth at Canada’s banks. The regulator said it would consider limiting the proportion of highly leveraged borrowers that a bank can carry on its mortgage book, toughening debt-servicing metrics and enhancing the stress test for risky mortgages. In January, OSFI unveiled proposals to tighten residential mortgage underwriting rules – known as B-20 guidelines – for federally regulated banks. “We’re not looking to take those choices away, we just like a regulated system that adds a bit more balance in terms of product choice through a cycle.” The system would be a little bit healthier if that product was a little less prevalent,” Mr. “If you look at the boom in mortgage lending through 20, we would have preferred lower allocation to that product. Renewals are expected to peak in 2025 when rates are likely to still be high. The issue is that many of these terms are coming up for renewal over the next few years, which means that the extended amortization will snap back to the original length, leaving borrowers to soon face higher payments. The unpaid interest is added to the principal, boosting the size of the mortgage and, in the long term, the cost of the monthly payments. Some banks offer variable-rate mortgages that allow the loan to negatively amortize to help borrowers adjust to higher rates by temporarily extending the time frame to pay it off.
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