Loans grow for 20% of Canadian bank’s mortgage holders due to high interest rates

In a recent update to its shareholders, CIBC provided a glimpse of how a growing proportion of Canadian mortgage holders are overburdened by the impact of the escalation in the Bank of Canada’s interest rates.

CIBC has indicated that mortgage holders holding a combined value of $52 billion worth of the bank’s mortgages have monthly mortgage payments that currently do not cover the interest portion of their loans.

The proportion of mortgage holders in such a predicament is about 20% of CBC’s total mortgage portfolio worth $263 billion.

The bank states that this segment “relates to mortgages in which all of the fixed contractual payments are currently being applied to interest based on the rates in which all of the fixed contractual payments are currently being applied to interest based on the rates in effect… and the terms of the mortgages, with the portion of the contractual interest requirement not met by the payments being added to the principal.”

CIBC has extended amortizations, the allotted runway of time to repay the loan, for this group of borrowers, in addition to accounting for unpaid interest.

Statistics from CIBC also show 31% of their Canadian mortgage holders have an amortization of 20 years to 25 years, which is the largest group in terms of runway length as of January 31, 2023. The second largest group is 27%, with amortizations of over 35 years, followed by 17% at 25 to 30 years.

But a year ago, as of January 31, 2022, CIBC reported zero amortizations of over 35 years, and the largest group was 45% within the 20 to 25 years category. This was followed by 27% in the 25-year to 30-year amortization category and 17% in the 15-year to 20-year category.

BMO, RBC, Scotiabank, and TD have not released this kind of information on the performance of their mortgages.

Mortgage holders have been facing unpredictability from consecutive interest rate hikes by the Bank of Canada, growing from 0.25% in early March 2022 to 4.5% in late January 2023.

Earlier today, the Bank of Canada announced it would hold its interest rate at 4.5% in the March 2023 update, which provides some relief for variable-rate mortgage holders. It also reported inflation fell to 5.9% in January 2023.