"Paying less principal, or in some cases no principal, is not a sustainable practice," Canada's bank regulator told MLN Tuesday.
Yet, that's precisely what hundreds of thousands of fixed-payment variable-rate mortgagors are doing.
In fact, paying all your interest due each month is optional at some banks (e.g., CIBC) in cases where rates have risen so much that one's fixed payment doesn't cover all the interest.
In many cases, this extends effective amortizations well beyond 40 years, creating "increased risks, including a greater persistence of outstanding loan balances (keeping borrowers in debt longer) and greater risks of loss to lenders," the regulator says.
Capital requirements now under a microscope
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