Analysts: Growing number of mortgage payments going solely towards interest

According to Victor Tran, a mortgage and real estate analyst at Ratesdotca, a significant number of Canadian homeowners are finding that their payments are only going towards paying the interest on their mortgages, rather than the principal amount.

Tran stated that this situation became particularly apparent when Canadian banks implemented unprecedented interest rate hikes in March 2022, as many consumers chose to significantly extend their loan amortization periods.

While longer amortization periods can make monthly payments more affordable, consumers are also required to pay more interest, according to data from the Canadian Financial Consumer Agency.

“I’ve had many clients with amortizations, that are 70, 80, even 90 years remaining, in the extreme cases, and that’s simply because their payments are not going towards any principal at all,” Tran said in an interview with BNN Bloomberg.

Tran expects that the Office of the Superintendent of Financial Institutions (OSFI) will make some adjustments to this trend, particularly to ensure that loan holders are actually paying down the principal.

“It has been about a year now; I think it could have been done earlier,” Tran said. “But sooner or later, I think new rules will be implemented. Otherwise, we may have generational mortgages where these mortgages can be passed on to their kids, if the amortization stays at elevated levels at 70, 80, or even 90 years.”

Source: https://www.mpamag.com/ca/mortgage-industry/industry-trends/growing-number-of-mortgage-payments-going-solely-towards-interest-analyst/449726