Over the past three months, roughly 13,000 CIBC clients have taken action to bring their mortgages out of negative amortization.
Negative amortization can impact fixed-payment variable rate mortgage clients when interest rates rise rapidly. When the fixed monthly payments are no longer enough to cover the rising interest portion, the balance is then added to the principal amount owing.
CIBC said the value of mortgages that were “non-amortizing” fell to $43 billion in the fourth quarter from $50 billion in Q3. The bank said this represents roughly half of its variable rate mortgage portfolio.
“Clients are choosing to increase their payments, converting to fixed rates, making onetime prepayments…all of which bring the loan back to amortizing status,” said Chief Risk Officer Frank Guse.
Both BMO and TD, the other big banks that offer fixed payment variable rates and that allow temporary negative amortization, have reported similar results. TD said it has seen “positive payment actions by clients” in response to higher interest rates.
Guse was asked to comment on reasons why some clients may be choosing not to take action.
“There are a couple of reasons for that. Some are just saying, ‘I’m aware of the status, I do not have to take action right now, I expect interest rates to come down and I just want to wait for that,'” he said.
“But in general, we are very pleased with the outcomes that we are seeing so far,” he added. “We continue to expect seeing those outcomes, and we continue to expect that number to come down as we keep up our outreach efforts and having conversations with our clients.”
Clients will see average monthly payment increases of $350-$700 at renewal
CIBC also provided insight into its upcoming mortgage renewals, the bulk of which—some $200 billion worth of mortgages—will be resetting over the next three years.
Of those, the average loan-to-value is between 40% and 50%, and CIBC estimates the average monthly payment increases at between $350 and $700, “which represents an increase of about 3% to 5% based on the origination income,” it said.
In its scenarios, the bank assumed a renewal interest rate of 6% over the next five years and no change in income since origination.
“I want to acknowledge that this high rate environment, paired with cost of living pressures puts pressure on our clients,” Guse said. “We are actively working with clients experiencing financial hardship to help drive to the best possible outcome. But overall, we feel comfortable with the resilience and reserve levels of our mortgage portfolio.”
Thanks to action being taken by mortgage clients, average amortization periods are now slowly trending back down.
Less than a quarter (22%) of CIBC’s residential mortgage portfolio now has an effective amortization of 35 years or longer, down from a peak of 27% in Q1.
Remaining amortizations for CIBC residential mortgages
| Q4 2022 | Q3 2023 | Q4 2022 | |
| 20-25 years | 31% | 31% | 31% |
| 25-30 years | 17% | 20% | 22% |
| 30-35 years | 4% | 2% | 2% |
| 35 years and more | 26% | 25% | 22% |
Canadian residential mortgages based upon current customer payment amounts.
CIBC earnings highlights
Q4 net income (adjusted): $1.52 billion (+16% Y/Y)
Earnings per share (adjusted): $1.57
| Q4 2022 | Q3 2023 | Q4 2023 | |
| Residential mortgage portfolio | $262B | $265B | $266B |
| HELOC portfolio | $19.4B | $19.1B | $19B |
| Percentage of res’l portfolio with variable rates | 33% | 33% | 32% |
| Avg. LTV of uninsured mortgage portfolio | 48% | 51% | 50% |
| Canadian res’l mortgages 90+ days past due | 0.13% | 0.17% | 0.21% |
| Canadian banking net interest margin (NIM) | 2.47% | 2.67% | 2.67% |
| Total provisions for credit losses | $436M | $736M | $541M |
Conference Call
- On the federal government’s recently announced Canadian Mortgage Charter, CIBC President and CEO Victor Dodig was asked if there was anything new in the guidelines that may impact the bank. He responded: “It’s very well aligned with previous guidance and expectations. It’s something that we do. We work with clients in financial hardship and we try to get to the best possible outcomes with our clients wherever possible. So, there’s nothing new that I would say that sticks out and would impact us as we already have established practices of how we work with clients in financial hardship.”
Source: CIBC Q4 conference call
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
Featured photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images
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Last modified: December 18, 2023
Clients will see average monthly payment increases of $350-$700 at renewal.
This is what is big bold letters above in your article above.
If your going to use Mathematics to explain mortgage rate increases .
You need to provide all the Math.
Not only selective math intended to help CIBC.
LET ME EXPLAIN SO THAT CAN TELL YOU WHAT ALL THE MATH ACTUALLY IS ,
SO THAT BORROWERS ARE NOT MISLED .
YOU STATE THAT AVERAGE MONTHLY MORTGAGE PAYMENT INCREASES WILL BE APPROXIMATELY $525 PER MTH.( 350 + 700) ÷2 = 525.
HOWEVER MORTGAGE PAYMENT HAS 2 COMPONENTS INTEREST & PRINCIPAL.
EXAMPLE
$400K MORTGAGE WHICH WAS @ 2% INTEREST = $666/MTH IN INTEREST AND $1600 IN PRINCIPAL APROX. TOTAL PAYMEMT $2266/MTH
$400K MORTGAGE WHICH RENEWS @ 6% INTEREST = $2000/MTH IN INEREST AND ? WHATEVER AMORTIZATION IS CHOSEN LETS SAY FOR THE SAKE OF THE EXAMPLE $2266 + 334 = $2600/MTH NEW PAYMENT. (2000/MTH INT + 400/MTH PRINCIPAL ) = 2600 PAYMENT
THE FACT OF THE MATTER IS COST OF THE LOAN IS THE INTEREST PAID .
THE ORIGINAL PAYMENT COST THE BORROWER $666 / MTH INTEREST
THE NEW PAYMENT COST THE BORROWER $2000/ MTH INTEREST
THAT IS AN INCREASE IN COST OF $1334/MTH OR 3 TIMES MORE ( 2% PER YR OLD INTEREST – 6% PER YR NEW INTEREST = 4% ×400K LOAN = 16K MORE INTEREST TO BE PAID .
EVEN IF YOUR ORIGINAL PAYMENT WERE LEFT UNCHANGED $2266/MTH IT WOULD ALMOST BE ALL INTEREST. $2000/MTH INTEREST COST.
THE INTEREST IS THE COST OF THE LOAN TO THE BORROWER.
THE PAYMENT IS NOT THE COST .
IT IS THE TIME BY WHICH THE COST IS PAID .
THIS IS THE COMPLETE MATHEMATICS,.
MEANT TO FULLY INFORM .
NOT TO NOT FULLY INFORM OR MISLEAD NOR SUGARCOAT A REAL HURT WHICH IS OCCURRING TO MANY BORROWERS.
@Jim,
Thanks for the illustration, what an eye opener.
However the media/Corp would never explain it the way you do. That would cause mass panic.
@Brian & @Jim
I’d love to hear a simple answer as to why Canadian Banks do not allow a simple 30-year fixed mortgage the way US lenders do? Do the mortgage once and never look at it again. This is the only country where your government and its financial institutions worke to screw its customers
Canada Interest Rate Act limit pre-payment to 3 months of interest on any loan past its 5th anniversary.
So the banks are dis-incentivized to offer any affordable long term fixed rate mortgage loans, it put all the repricing risk on the bank while the borrower can walk away with minimal pain. They rather renew a borrower into a new term where the pre-payment penalty is at their discretion.
In the US, the mortgages are usually packaged and sold off to a bond fund, so the bank don’t usually bear the risk.
This is a major unintended consequence of a government legislation.