Borrowers may lose fixed payment protection with OSFI’s new policy: Opinion

Canada's bank regulator doesn't like it when banks allow mortgage balances to grow. So OSFI is making that practice more costly.

The regulator has been telegraphing this change for a while and finally announced a consultation for it.

The new policy (see announcement) will apply to banks like BMO, CIBC and TD, which allow variable-rate mortgages to accrue interest. That happens when soaring rates cause interest payments to grow such that the interest exceeds the fixed mortgage payment.

Banks that permit this practice on mortgages over 65% loan-to-value will have to reserve more capital for those loans—and capital ain't cheap. "The proposed changes should encourage banks to lessen the number of mortgages that would otherwise go into negative amortization," OSFI said Tuesday.

Instead of paying up, we're guessing most targeted institutions will instead tweak their policies—either to:

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