OSFI Considering Mortgage Amortization Changes

House price squeezeFederal policy-makers are exploring additional mortgage rule tightening, CMT has confirmed.

A spokesperson from Canada’s banking regulator, The Office of the Superintendent of Financial Institutions Canada (OSFI), verified that it is looking at the issue of limiting amortizations to 25 years on conventional mortgages (those with 20%+ equity). Currently, those “low-ratio” mortgages can have amortizations up to 35 years.

OSFI is “doing some preliminary consultation with financial institutions” on the matter, said the spokesperson.

Those communications appear to be behind the scenes with banks and federally-regulated trust companies. OSFI will not be issuing a public statement in the very near term (i.e., next week).

OSFIThe regulator added, “We are working to determine the desirability of some changes given current conditions in housing markets and recent trends in household indebtedness.”

“A decision in that regard would be taken once we hear back from the industry. Any proposed changes to our mortgage guideline that may result from this work would be subject to a public consultation process.”

Officials from OSFI, the Department of Finance (DoF) and the Bank of Canada have been working together closely. Their aim is to stabilize housing, moderate debt levels and reduce economic exposure to rising rates.

jim_flahertyWhen implementing the last set of mortgage changes in 2012, Finance Minister Flaherty made it crystal clear that he considers it “desirable” to make home buying more difficult.

In December, he told reporters: “Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”

But real estate has been more resilient than many expected. And some at the DoF are not satisfied that housing is slowing fast enough.

Recent data show national home sales down roughly 15% year-over-year. Mortgage volumes have dipped as well. But home prices are marching stubbornly higher, hitting a new record high in March according to Canadian Real Estate Association (CREA) figures.

There’s every reason to suspect that the DoF will keep applying air brakes until the housing plane has no more lift. Then it becomes a question of whether home prices glide lower or break into an all-out dive (a lower probability).

This article is in follow-up to Friday’s story: Death Sentence for Extended Amortizations?

Rob McLister, CMT

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  1. Comment avatar


    This will be a tougher sell for the DoF than previous rule changes (which I was all in favour of).
    The banks are private businesses. If they want to take that risk, and if these mortgages aren’t backed by public funds, many will just tell them to butt out. 30yr am is standard in the US.

  2. Comment avatar


    While they’re at it, they should raise down payment requirements back to 10%.

  3. Comment avatar

    Van Rijn    

    Just wait until all these “airbrakes” blow up in Foolherty’s face. Once prices start dropping the weigh of regulations will drive the market way lower than it would have fell otherwise.

  4. Comment avatar

    Patiently Waiting    

    You think DoF is affected only via CMHC? Think about the low borrowing cost Canada is enjoying today on the back of a “solid economy”. All this effort is to try to keep that ‘solid’ perception going with an engineered attempt at soft landing. DoF/BoC sees this as the only better option than a hard landing with significant amount of economic damage beyond just the CMHC balance sheet.

  5. Comment avatar

    Patiently Waiting    

    Not an unintended outcome.

  6. Comment avatar


    I’d say the same thing I said in the other thread. Amortization length shouldn’t be a public or private issue. It should be a common sense issue. The only relevant question should be, is the borrower qualified enough to warrant a longer amortization. Everything else is secondary.

  7. Comment avatar


    It appears our esteemed Minister of Finance (and the bureaucrats) don’t yet understand the law of supply and demand …. high demand and low supply equals rising prices. They understand this with oil; why is it so difficult to understand with real estate?
    And, for the record, they engineered the low supply by causing homeowners to pause, stand pat and seeing what happens with their local market before they upgrade their property. This is what is putting pressure on prices especially in the entry level housing.

  8. Comment avatar


    10% down payments would at least be within the reasonable realm of the government since that would be an insured mortage.
    It’s a change I would very much be in favour of.
    If I had to guess, many in gov’t probably feel that way too, but the politics of making a change like that spurring a major ahem, “change”, in the market… Bad optics. Bad politics.

  9. Comment avatar


    The bears couldn’t be happier, I’m sure. After all, any news that is negative for real estate gets them salivating in a manner that would make Pavlov proud.
    My take-away is more obvious, which is that interest rates are clearly going nowhere for quite some time. As a result, the only tools left for those determined to cool down the market (whether justified or not) are regulatory.

  10. Comment avatar


    There goes the floor!

  11. Comment avatar


    Yes, the banks are private and they can senselessly compete for business. The risk factor that you mentioned is not on the banks. It is more on the tax payers, around $600 Billion, via. that arms length crap called CHMC.

  12. Comment avatar


    Flaherty must be aiming for aggregate mortgage balance to be under $1 trillion.
    What will the “other shoe” be if banks do not comply?

  13. Comment avatar


    the same way that loosening the rules resulted in a much hotter market then we would have otherwise seen. The momentum of the market always overshoots both upwards and downwards.

  14. Comment avatar


    While i agree with this, i also think that it would cause a much larger shock to the system and they are trying to do anything but increase it. What i would like to see specific rules to factor age into the ammortization limit. So a 20-30year old could go for 30y but a 40-50 year old would be limited to say 20y and a higher downpayment requriement.

  15. Comment avatar


    This is great news for overly inflated housing market. Anything that takes 20 to 25% out of the housing valuations is greatly needed. The only ones making money on the over inflated housing market are (1) Banks (huge mortgages) and (2) Real Estate Industry/Monopoly (huge commissions). Canadians would be far better off with far cheaper homes and higher interest rates. I’m sure there will be the continual calls for the Gov to butt out but the truth is that the measures taken so far haven’t had enough of an affect — despite all the crying prices are still soaring.

  16. Comment avatar


    This is just a game that Flaherty’s playing, its way too late to consider the possibility of a soft landing. I would actually like for someone to explain what a soft landing is? The wheels are already in motion and there’s nothing anyone can do except use terminology that has no real meaning to make people more confused than they already are. The ethical thing to do would be to tell everyone that lending standards were too lose which allowed people to purchase unreasonable amounts of dept and escalate housing prices to the point where the average Joe can’t afford it.

  17. Comment avatar


    For their next rule change, I vote they ban these “skip a payment” schemes offered by most of the big banks. Why haven’t they clamped down on this obvious loophole?

  18. Comment avatar

    Value Indexer    

    As someone who pays extra on my mortgage every month AND owns shares in Canadian banks, I strongly object to this!

  19. Comment avatar

    Still a correction coming    

    They still need to address the unsecured credit. Way too high of credit card limits and or lines of credit (unsecured) they need to put the restriction of counting the full payment of the unused portion to eliminate the exposure after they get the new house. What happened to cancel and close the account then we can take a look at it? Most clients don’t understand that they just squeaked by for their approval with paying down that credit card to the acceptable mark so they would be under the 42% TDS limit. This really would solve a lot of issues.

  20. Comment avatar


    When the high demand is promoted with artificially cheap credit through government policy, the government ought to quell demand by reversing the same.
    The high demand is not organic.

  21. Comment avatar


    Emperor Flaherty likes to maintain control of his Kingdom. Of course he knows best and the rest of us minions should just agree with whatever the exalted ones decide!! Rubbish!
    They are going about this the wrong way. There is nothing wrong with longer amortizations. It allows people to make lower payments but also make higher payments when they can. 25 year mortgages just block a lot of buyers from the market because house prices are so high. It seems like he doesn’t want the majority to own homes, just the more well off.
    Thank you Emperor for your wisdom!!

  22. Comment avatar


    I’d prefer if the Government stopped meddling in things I’m invested in over $900,000.
    70% of Canadian own their home? Who are they actually helping if they start pissing around with housing values any more than they already have.
    I’m fine with the insurance meddling as that’s fully their right (even though it’s on solid ground) but if a person with $100,000 wants to have a 99 year amortization on their $400,000 mortgage and it’s not insured the government should have ZERO say.
    I’ve been saying this for years as have many posters and people already replying to this article, cut the LOC’s, Credit Cards, predatory lending on the foolish, not the people who 1. can prove they can handle their finances and 2. might have a great deal of their investment portfolio in real estate. Let the market dictate how they do, not the DOF/GOC.

  23. Comment avatar


    I voted Conservative in the last Federal election.
    I want my vote back.

  24. Comment avatar

    PEI Fella    

    The problem I have with all of this is that A) the market is over inflated only in the larger centres. B) The cost of building materials is rising higher and higher which means to me if you stall the Real Estate Industry the construction industry will follow. It is very short sited to think that the Banks and Realtors are the only ones dependant on a strong real estate market.
    Putting more rules in place on homes which someone can build equity on is foolish. Why are the banking regulators ignoring credit card debt which is high interest and nothing but a “bad” debt.

  25. Comment avatar


    That is not true at all. The majority of price increases are due to natural population growth, immigration, record low rates and tight supply. The Bank of Canada concluded this itself. If you want to argue otherwise, you obviously don’t care about the truth.

  26. Comment avatar


    High demand is definitely organic in a number of markets around the country – particuarly for urban single family homes. Credit availability fuels price increases, for sure, but you can have cheap credit and low prices where demand doesn’t exist.

  27. Comment avatar


    I don’t understand. What do your extra payments have to do with these “skip a payment” options that allow people to just not pay their mortgage payment one month out of every year?

  28. Comment avatar


    This isn’t good news for me. I bought our home 3 years ago, and if the BOC / DOF have their way, my property value is going to plummet. It’s already gone down 25k in the 3 years I’ve owned this place. If the value continues to go down, I’m going to be screwed, and so will many others in the same boat.

  29. Comment avatar

    surinder singh    

    i like to change the rule of lending only if bank check all income document by CRA 20% people will not qualify for the mortgage banks know this all . but they want to sell only because this is public money
    2 bank of Canada can make the rule on CMHC qualify rate must be 3 years posted rate some time in future rate will go up and who is buying today they can not afford the home
    only one house for principal resident if customers have two home they can not get insurance from the CMHC people is smart and bank told them the way show first home rental and second home for principal resident so they need less down payment
    3 amortization must be 25 years only for all mortgage
    this all will work

  30. Comment avatar


    Canada has a 70% ownership rate, how much higher do you want it to go? If you can’t afford to pay your house off in 25 years at current interest rates, what do you think is going to happen when interest rates increase?

  31. Comment avatar

    Ron Butler    

    The DOF has an agenda to decrease property values in a controlled way in big cities, reduce overall debt levels and stop investment property speculation. It will keep on tinkering with policy until it is satisfied. We can all debate the right and the wrong of it but the DOF has its goal.
    I am sure they think if things get too tamped down to the point it effects the overall economy they can change the rules to make lending easier. Infinite policy manipulation. It seems like a heck of a way to run a country but it also seems just as clear that is their policy. Just keep making adjustments in the lending rules till the mission is accomplished. Its a miserable ride for those of us in the business.

  32. Comment avatar


    It often has nothing to do with being able to afford a 25 year amortization. So many people miss this point.
    A lot of mortgage holders with 20% down simply maximize their amortization so they can put their money to work elsewhere.

  33. Comment avatar


    For the first time ever, the Harper Government is begining to act responsibly on matters pertaining to the real estate market. But why are they still “studying” this? They should get on with it already. 25-year amortizations are exceedingly fair and reasonable, especially when you factor in these historically low interest-rates.
    If you can’t do a 25-year amortization on 2.9 interest rate, you should NOT be owing a house at this time. It should really be as simple as that.
    And yes, the Government ought to be concerned, because when the sh*t hits the fan, the whole Economy will be in danger.
    Canadians are scanadalously over-indepted. And real-estate prices, in places like Toronto and Vancouver, have clearly outgrown average incomes. Something will give sooner or later. We can choose to land softly, or we choose to land with a loud thud.

  34. Comment avatar


    Private businesses not backed by public funds? That all changed earlier this year…
    >>> Canada’s six largest banks will be subject to more stringent supervision and requirements designed to reduce leverage after being designated too big to fail by the federal regulator.

  35. Comment avatar


    Steve – judging from RRSP contribution data, I’d say there aren’t nearly as many people putting money to work as you might believe.
    >>> Data from previous years shows just 26% of people actually made an RRSP contribution…
    >>> the average RRSP contribution amount was $3,544, down $1,100 from 2012…

  36. Comment avatar


    There are 4+ billion people in this world that earn a third or less what Canadians earn. Thanks to Free Trade, Canadian jobs will be shipped to those countries until our wage rates become more competitive. However, our wage rates will never be competitive as long as our cost of living – including housing costs – are as high as they are. Getting housing costs down is imperative to the future of Canada.

  37. Comment avatar


    I voted for the Conservatives the first time around. But then when I saw how vigorously they pumped up the Canadian real estate bubble – just as the US bubble was blowing up – I realized they were neither conservative, nor good stewards of the Canadian economy, so I’ve never voted for them since.

  38. Comment avatar


    Surely you factored the potential for losses into the equation when you purchased? Or did you assume emergency interest rates and pro-real estate gov’t policies would last forever and that real estate prices only ever go up?

  39. Comment avatar


    Real estate has cycles of feast or famine. You’ve had a good run and hopefully set savings aside for the slow period coming up. Now you can enjoy life a bit or embark on a new career. Alas if you didn’t set savings aside, I agree that things will get miserable.

  40. Comment avatar

    The R    

    what do you mean can’t afford ? Longer amortizations meant better house & (plus )extra cash flow to enjoy a bit better (funer)lifestyle while still younger.
    Why that pisses off anyone trying to go debt free ASAP, is way beyond me…maybe they hope sellers will sell for less…
    or buyers buy for less (screw everything else.)

  41. Comment avatar

    Agent Fudd    

    There must be 100 better uses for spare cash than paying off a 2.79% mortgage. RRSPs are only one.
    Heck, it’s wabbit season. Plant carrots with the money.

  42. Comment avatar


    There’s been a great deal made lately of the fact that house prices have doubled in Canada over the last decade, a rate that is considered ridiculous and unsustainable by some.
    For the sake of comparison and to determine if such price increases are unprecedented, I did some digging through the archives of the Toronto Real Estate Board.
    The average MLS sale price in Toronto in 1967 was $24,681. The average sale price 10 years later in 1977, was $67,015. A 272% increase!

  43. Comment avatar

    EX-Edmonton Mortgage Broker    

    did you also check what the average wage in 67 was vs 77?

  44. Comment avatar


    When you factor in the current Dept to Income Ratio and current RRSP contribution rates it doesn’t look like Canadians are using the extra money to pay down anything. Housing prices have more than doubled since 2001…. hmmmm, I wonder what Canadians are using that extra money for? Few people are smart enough to take advantage of these low rates to pay down dept. Most people use the low interest rates to purchase more dept without considering future serviceability. Average incomes have been more or less flat for at least 5 years, expectation that to change without any real evidence is foolish. I could go on and on but people don’t want to hear that their house is going to lose value and the RE industry doesn’t want to hear that the cash cow has been slaughtered.

  45. Comment avatar


    Bingo. The nail has received a direct hit on the head.
    Flaherty’s next move if this amort cap flops?
    No more interest only HELOCs, they will be required to amortize.

  46. Comment avatar


    Does MLS show the economic backgroud during that time? Were salaries flat between 1967 and 1977? Were lending standards brought from one extreme to the other? Does MLS show you all that?
    Take the average price in 1989 then in 1996 if you want to see what’s going to happen in the near future. The price of housing fluctuates, you can cherry pick all you want, current price values are cresting.

  47. Comment avatar


    LS,as I make 20 double payments per year, I can do the same number of skip a payment.
    You sound as misinformed to me.

  48. Comment avatar


    Why the interest rates should increase, Frank ?
    … probably because you want them to 🙂

  49. Comment avatar


    funner lifestyle … when you have money for it, or to borrow money for it 🙂 that’s the question

  50. Comment avatar


    I want a private spaceship and a planet full of pleasures.

  51. Comment avatar


    compare to the average salary at the time and cost of living

  52. Comment avatar


    I agree with you regarding maximizing the amoritization so you can put money to work elsewhere. The problem is that people use that extra cash to buy a bigger house, not put money elsewhere. Once they have that bigger house, you need a nice boat/car/furniture which can be financed through their new found wealth/equity.

  53. Comment avatar


    Truly an amazing revelation Appraiser. And to think, there was hardly any inflation in the 80s so all of that is real house price appreciation!
    Now that we’ve seen two examples where house prices more than doubled, we can all be assured that by 2025 prices will be north of 600,000 in Canada. It’s happened before, so no reason to be concerned.

  54. Comment avatar

    Doug Boswell    

    Surinder: The qualifying rule is already in place. All mortgages, variable and those fixed under 5 year terms must qualify using the 5.14% qualifying rate.

  55. Comment avatar


    Historical interest rates are well above current rates, to expect them to remain this low forever is pretty near sighted and self serving. The Americans will start raising their interest rates within a few years (if not sooner), plan accordingly or be house poor or houseless.

  56. Comment avatar


    Good point and lets omit any facts that may prove otherwise. Let me guess, I should buy now before its too late? There not making any more land? Since sarcasm is often misinterpreted online, I would like to clarify that you guys are intentionally cherry picking a small sample of data in order to mislead people. This cherry picked data does not truely reflect the reality of the situation. You want people to believe that housing doubles every 10 years to trick them into buying an asset that historically goes through cycles. My prediction is that in 10 years, you’ll be lucky if the average price of a house is where its at today. End Communication!

  57. Comment avatar

    Ron Butler    

    wjk, “embark on a new career” you clearly know nothing about mortgage brokers; cities could turn into lakes of fire and zombies could be rampaging through the woods and mortgage brokers would be convincing lenders that the heat will increase property values and the zombies can be underwritten based on pre-zombie Beacon scores.
    Its zero fun to work through this point in the cycle but mortgage brokers don’t ever go away, we are the cockroaches of the real estate / financing world.

  58. Comment avatar


    What ratio of conventional mortgage holders use a 30 year am to buy a bigger house? I bet it’s a small percentage.

  59. Comment avatar


    Further to my last post. TREB data indicates that the average sale price in 1980 was $75,694, ten years later in 1989 it was $273,698, an increase in ten years of 362%!!
    Now THAT’S a bubble, clearly evidenced by the fact that the average price by 1998 was down to $216,815.

  60. Comment avatar


    Does anyone have that statistic? My point is that the increase from the traditional 25 year ams to 30,35 or 40 years ams has allowed people to afford houses that are more expensive (not necessarily bigger). When I look at current dept to income ratios in Canada (among other statistics such as savings), I see that people haven’t refinanced to increase their savings or retirement funds or pay off dept. The increased ams are allowing people to buy houses that were previously out of their financial reach. Provided that ams never change back to historical norms, prices always incease and interest rates never return to normal rates, you will be ok. Historically speaking, this has never happened.

  61. Comment avatar


    Dizzle’s comment are valid. Claiming that people are liars because they like to debate a subject is not a valid argument. Population increases and immigration have not changed enough to account for the increase in house prices in the last 10 years. Provide numbers to back up you claim. I would also like a link to validate that the BoC made that comment.

  62. Comment avatar


    You need to compare average income increases at that time… interest rates and so on.

  63. Comment avatar


    Frank said, “The increased ams are allowing people to buy houses that were previously out of their financial reach.”
    I hate when people come on here moaning about risk they can’t measure. Until you can prove how big a threat this is with real numbers, your argument is weak.
    Oh and by the way, prices always rise long term (I think it’s due to this newfangled theory called “inflation”). As for rates, they have been below-average for over 30 years. I’ve got two words for you: “new normal.” Catch up to the trend.

  64. Comment avatar


    According to statcan, Canadian employee salaries increased by 2.1% between 2001 and 2010. That’s not an annual increase of 2.1% per year, that’s a total increase in of 2.1% in 10 years. According to TREB, housing prices between 2001 and 2012 have increased 200%. How do you think people were able to afford to pay double for a house when they make the same? DEPT at low interest rates with high amoritization. Is that sustainable?

  65. Comment avatar


    Here’s something for you to moan about from rbc.com “last year, 40% of new mortgages were amortized over periods longer than 25 years according to a survey by the Canadian Association of Accredited Mortgage Professionals”
    You are right, prices do rise to pace inflation. House price increases have doubled and trippled inflation for over a decade now, that means it will compensate to bring prices to normal levels.
    Low interest rates are a new normal? What are you basing that on? That is pure speculation based on wishful thinking. I wouldn’t bet my money on that.

  66. Comment avatar


    It’s not self-serving to believe rates will stay low for the long run. That is preposterous. The economic world order has changed, plain and simple.
    You should check yourself before commenting Frank. Anyone with the faintest degree of market knowledge knows that history is not an indication of the future.

  67. Comment avatar


    not to mention that in 1989 the prime rate was around 13.5% and then dropped to 6.5% by 1998, void of a rate decrease the drop would have been even more severe. And now we are already at rock bottom and any BoC rate decrease will barely do anything to bank rates. The US dropped their rate by 4% to soften their crash and it still hit them pretty hard, we have no more real tools to use to soften a decline in Canada that would benefit to borrower.

  68. Comment avatar


    Just ask Japan how great it was to own a home after they dropped their benchmark rate to near 0%. 2 decades of declining house prices with no signs of recovery as demographics takes it’s toll (a problem that we will also have in the coming decades too as it becomes increasingly expensive to raise enough children to maintian current population levels)

  69. Comment avatar

    Andrew Wood    

    I’m sick of the government making changes to an industry they don’t understand.
    Clients and myself rely on longer amortizations as a safety net for investment and cash flow properties. Set a long amortization and payments on a shorter schedule… that way, if you have loss of income or unexpected bills, you can lower your payment for a short period while you recoup the loss (yes that can be done with savings, but with the low returns we are getting,liquid savings are pissed away with inflation).
    If homeowners have the equity and banks are comfortable with their portfolio, they should be able to offer whatever GD amortization period they see fit.
    Perhaps increasing the minimum down payment to 10% would spur some FTHB’s from over extending themselves and curtail some of the idiots buying rentals (claiming owner occupied) with 5% down. At least that would fall under CMHC guidelines.
    Lastly, I’m sure the government will neglect to grandfather current borrowers from the rule changes and force some folks into “B” lending options because the feds decided to change the rules half way into the game.
    I have seen a bunch of clients purchasing new construction lose the $10,000 grant or their approval because completion was extended and the feds didn’t grandfather them in.
    The government manages to bugger up just about everything it touches… allow the market to manage itself and intervene when there is a clear problem. THAT IS YOUR JOB.
    Where the hell is the regulation on unsecured lines of credit and credit cards. I look at people credit reports all day and THAT’S WHERE THE PROBLEM IS.
    ***Let’s shorten conventional amortizations on mortgages, but do nothing to stop people from being offered 5 times their gross annual income in credit card limits and going bankrupt***

  70. Comment avatar


    That’s pretty funny. Maybe the hardy ones will stick it out but it looks like those on the margin are already bailing: http://www.mortgagebrokernews.ca/news/brokers-there-are-too-many-of-us-107312.aspx

  71. Comment avatar


    Here’s some more ideas for the OSFI / DoF:
    1. Eliminate ways around the minimum down payment rules as described by Rob earlier this year in this article: http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/canadians-can-still-buy-a-house-without-saving-their-pennies/article6970799/
    2. Eliminate use of HELOCS to fund interest only mortgages as described here: http://humblestudentofthemarkets.blogspot.ca/2013/04/a-time-bomb-in-canadian-financials.html
    3. Eliminate reduced lending standards for recent immigrants as reported by Garth Turner here: http://www.greaterfool.ca/2013/05/14/why-life-isnt-fair/
    4. Adjust the CMHC mortgage cap by region. The $1M cap may make sense in parts of Toronto or Vancouver but in other parts of the country $1M buys luxury properties that few locals can afford and therefore poses a high risk of significant loss for the mortgage holder in a forced sale during a real estate downturn.

  72. Comment avatar


    >> LS,as I make 20 double payments per year, I can do the same number of skip a payment.
    Ridiculous. You really think the skip a payment schemes are for people who massively accelerate the mortgage payments the rest of the year?
    If you are accelerating your mortgage you have no need for this option. This is a strategy for people that are just scraping by. Basically allows them to extend their 25 year mortgage by a few years and cut 8% off their yearly costs.

  73. Comment avatar


    >> Since sarcasm is often misinterpreted online
    Oh dear is it ever…

  74. Comment avatar

    Robert McLister    

    Hi LS,
    Re: “If you are accelerating your mortgage you have no need for this option.”
    That’s a bit too categorical. Reasonable life expenses can arise without notice. Skipping the rare mortgage payment to pay for them is often better than liquidating investments/RRSPs, keeping dead cash on hand in low-interest contingency accounts, or borrowing from a revolving account.
    Of all such programs, the most conservative are those that require a prior prepayment in order to skip a payment. This ensures borrowers don’t exceed the maximum permissible amortization.
    Skip-a-payment programs provide a powerful incentive to make prepayments. Instead of sticking spare cash in a low-earning savings account or a restrictive higher-risk retirement account, folks can earn a risk-free guaranteed return by accelerating their mortgage repayment. They can do so with the full confidence of being able to get those funds back if required.
    When used responsibly, miss-a-payment/match-a-payment features can be tremendously beneficial. The “misuse” by some simply doesn’t justify the majority of well-qualified borrowers losing this important tool. Although, the bar (i.e., creditworthiness criteria) to access this privilege could be set higher.

  75. Comment avatar


    If current rates are the “new normal” and will remain in effect for the next 10+ years then we will have a much bigger problem than housing prices.
    Pension funds and annuities have valuation assumptions that presume rates will rise over the next 10 years. To adjust their reserves to the current rates held long term would crush them and create a lot of problems.

  76. Comment avatar


    We pay extra on our mortgage each month, however we also paid additional amounts in advance of a parental leave without pay and used the skip-a-payment during that time.

  77. Comment avatar


    Get ready for problems then. Pension funds should plan for the worst and update their models accordingly.

  78. Comment avatar


    Robert, the main problem here is the potential for abuse, and the fact that it is a clear loophole for the CMHC regulations on amortization length.
    All the regulations are fine for responsible, mortgage paying individuals who are not stretched. But the only reason the country is discussing this at all is because of the people who don’t fit that category. That is the critical factor here.

  79. Comment avatar

    Robert McLister    

    Hi LS,
    As we all know, there are countless ways that undisciplined borrowers can shoot themselves in the foot. But when it comes to policy changes, the first questions to ask are: (1) how big is the problem (really); and (2) is it worth the potential loss of economic benefits for the majority of responsible mortgagors?
    With respect to eliminating skip-a-payment features, the small risk reduction doesn’t seem worth the downside (as referenced above). I say that because skipping a payment each year would extend one’s amortization from 25 years to just ~28.5. But exceedingly few people skip payments every year, at least according to lenders I’ve spoken with.
    In cases where the lender requires equivalent prepayments before missing payments, the issue is almost moot (because the amortization does not increase).

  80. Comment avatar


    So many errors.
    You overestimated the price increase in T.O. by 100%.
    In addition, you used inflation adjusted “real income” gains during the time period in question and compared it non-inflation adjusted price increases for housing. Hmmm!

  81. Comment avatar


    “folks can earn a risk-free guaranteed return by accelerating their mortgage repayment.”
    I disagree, was accelerating your payments was risk free in 1988?
    You don’t have to use low-earning savings account or a restrictive higher-risk retirement accounts as an alternative to accelerated payments. There are other options available with better returns.

  82. Comment avatar

    Robert McLister    

    HI Frank,
    A mortgage prepayment is risk-free in the sense that one is assured a positive return (guaranteed interest savings) with no principal risk. Regardless of what happens with interest rates, home prices, alternative investments, etc., a mortgagor still has to make his/her payments. So yes, these statements were as true in 1988 as they are today.
    Despite this drifting a bit off topic, what other options did you have in mind with better risk-adjusted returns than mortgage prepayments? Do those options fit the same context of this discussion—i.e., a typical mortgagor who needs liquidity (which skip-a-payment features provide) and the maximum overall after-tax return with essentially no risk?

  83. Comment avatar


    Housing prices doubled between 2001 and 2012, salary increases were minimal, what was used to bridge that gap? DEPT and low interest rates. hmmmmmm!

  84. Comment avatar


    I understand your point, there is no risk in reducing principal on a mortgage. I do believe you’d be better off using that extra cash in a highly liquidable asset that can earn more, especially with the current interest rates. The investment options you provided are the worst options and putting all your money into one asset is never a good idea.

  85. Comment avatar

    Robert McLister    

    Frank, You reference a “highly liquidable (sic) asset that can earn more.” Can you provide some specific examples with the same or lower risk as a prepayment?
    Re: “The investment options you provided are the worst options,” are you referring to “low-earning savings account or a restrictive higher-risk retirement account?” That was not a recommendation. Those two items were referenced solely for the purpose of comparing them to a mortgage prepayment.
    And yes, putting all your eggs in one basket is generally inadvisable. No argument there.

  86. Comment avatar


    The comparison of a highly liquidable assets and a mortgage prepayment are apples and oranges. You have to sell your house to liquidate your prepayment, it takes time and a lot of money to do that. You could argue that you could liquidate your prepayment by missing a payment but in that case you are only able to liquidate in increments equal to your monthly payments.
    I don’t have anything against pre-payments as it can be used to your advangage. If you are using it for the sole purpose of paying down your mortgage to save interest and you are not diversified you are asking for trouble.

  87. Comment avatar


    With all due respect, put your ideas where your mouth is.
    I earn a 5.15% pre tax return from prepaying my 3.09% mortgage. Good luck trying to find a safe liquid investment that yields more. If you’ve got one, do share.

  88. Comment avatar

    Robert McLister    

    The apples/oranges analogy doesn’t apply unless you’re prepaying more than your mortgage permits you to readvance (or skip), and unless you actually need to readvance/skip more than your mortgage permits.
    Remember that most people prepay small amounts on an annual basis. Even having the liquidity of one skipped payment can be helpful in certain circumstances.
    Also note that various products allow you to readvance/skip more than others. There are mortgages that let you pull out every dollar of prepayment you make. Most would agree that’s fairly liquid.
    Diversification and optimal cash allocation are separate and involved topics. They’ve been covered in other posts accessible via the Search function. A financial advisor is the best source of personalized advice on that topic.
    At this stage, I unfortunately have to check out of the discussion, but thank you for all the posts.

  89. Comment avatar


    Of course interest rates will rise in the next few years but maybe by .25 or .50. I can’t see it going much beyond that. It would grind the growth to a halt and rates would drop again soon after that. The world economy is just not ready for rate increases.

  90. Comment avatar


    LS, ridiculous are your posts,
    I just wrote you that I use that option if needed and I’m not extending my amortization.
    So the “skip a payment” option is useful tool for responsible borrowers like myself.

  91. Comment avatar

    Bryan Jaskolka    

    Maybe you should spend a little more time reading the news, and a little less time party bashing. Flaherty has already said that he’s happy with the changes, and that he’d actually like to see the market cool down even further in certain areas. Kegpeg is right. It’s already blown up in their faces. Now they’re taking steps to fix it.

  92. Comment avatar


    You make it sound like higher prices are all due to looser lending standards. That is so untrue. Do you even know what causes higher home values? Have you ever heard of things like record low rates, land scarcity and a growing population? You probably have but you’d rather have everyone believe that mortgages are the root of all evil. Amortizations and down payments are just two variables in a long equation. Educate yourself.

  93. Comment avatar


    wjk – Who cares if my mortgage is interest only if I have 20% equity and pay on time? If I am a good credit risk and want to spend my money on something besides my mortgage, that is none of OSFI’s/DoF’s business.

  94. Comment avatar


    You say “Canadians would be far better off with far cheaper homes and higher interest rates.”
    What an absurd generalization. People’s homes are their biggest asset. Families who have their nest egg in their home would not be better off with lower prices. Neither would people who bought recently and need enough equity to sell and move.


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