Over a quarter of TD Bank’s residential mortgage portfolio now has an effective amortization of 35 years or longer.
It’s the result of rising interest rates taking a bigger chunk out of many borrowers’ monthly mortgage payments, causing them to pay down their mortgage more slowly.
TD Bank disclosed the details in its fourth-quarter earnings report. A year ago, none of its portfolio had an amortization above 30 years.
Remaining amortizations for TD residential mortgages
| Q4 2022 | Q4 2021 | |
| 15-20 years | 13.5% | 19% |
| 20-25 years | 29.5% | 42.1% |
| 25-30 years | 19.2% | 28.2% |
| 30-35 years | 3.7% | NA |
| 35 years and more | 25.2% | NA |
It’s an issue at some of the other big banks as well. At CIBC, for example, 26% of its residential mortgage portfolio also has effective amortization of 35 years and longer.
Those impacted by increasing amortizations, which is the time it would take to fully pay down your mortgage, are variable-rate borrowers who have fixed regular payments.
Thanks to a 350-basis-point increase in the prime rate this year so far, variable-rate borrowers with fixed monthly payments have seen their interest costs rise, eroding the amount of principal repayment and thus extending their amortization.
But Michael Rhodes, group head of personal banking at TD, pointed out that clients will be required to increase their payments at renewal time in order to bring their amortization back down to what it should be.
“The contractual obligations haven’t changed for the customer. And so, if [they have] a 25-year term, even if they may be amortizing currently at a slower rate, they still do have a 25-year term,” he said. “When the renewal comes, we are generally looking to either reset to the initial term or possibly re-underwrite for, let’s call it, a new 25-year term.”
Rhodes added that the bank may look at longer terms “on a case-by-case basis.”
Chief Risk Officer Ajai Bambawale added that TD has done a lot of stress testing and is “watching the rate reset risk across our fixed-payment variable books very, very closely.”
TD earnings highlights
Q4 net income (adjusted): $4.07 billion (+5% Y/Y)
2022 net income: $15.4 billion (+5%)
Earnings per share: $2.18
| Q4 2022 | Q3 2022 | Q4 2021 | |
| Residential mortgage portfolio | $243.5B | $240.4B | $226.9B |
| HELOC portfolio | $113.7B | $112.2B | $102.1B |
| Percentage of mortgage portfolio uninsured | 80% | 80% | 77% |
| Avg. loan-to-value (LTV) of uninsured book | 49% | 47% | 49% |
| Portfolio mix: percentage with variable rates | 45% | NA | NA |
| Mortgages renewing in the next 12 months | ~10% | NA | NA |
| Residential mortgage gross impaired loans | 0.07% | 0.07% | 0.10% |
| Canadian banking net interest margin (NIM) | 2.70% | 2.59% | 2.48% |
| Provisions for credit losses | $617M | $351M | ($123M) |
Source: TD Bank Q4 Investor Presentation
Conference Call
- “In our real estate secured lending business, annual average portfolio loan growth is at its highest level since 2010, and this quarter, retention rates increased by 3.4% year-over-year,” said President and CEO Bharat Masrani.
- “While credit performance remained strong, we saw some normalization in certain portfolios this quarter as credit metrics have come off their recent lows,” said Ajai Bambawale, Chief Risk Officer. “In addition, economic risks remain elevated, reflecting persistent inflation and rising interest rates and the increasing risk of a recession.”
- “We have revised our housing outlook downwards because of higher rates. We are not expecting a crisis,” Bambawale added. “We are definitely expecting an unwind of some of the gains that have occurred since COVID. But when I look at quality across, whether it’s HELOC, whether it’s fixed rate, whether it’s variable, I would say that asset quality is strong.”
Source: TD Conference Call
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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