OTTAWA — Canada’s banking regulator is tightening requirements for some types of real estate loans to protect homeowners who may be at greater risk from higher interest rates.
The Office of the Superintendent of Financial Institutions says changes affect combined loan plans like reverse mortgages or loans with shared equity features, which have grown in popularity in recent years but may be riskier for lenders.
For borrowers who owe more than 65 per cent of the loan value, a portion of their payment must to go toward the loan principal rather than to interest until they bring the loan below that threshold.
OSFI says the changes will generally take effect the next time borrowers renew their plans after the end of fall 2023, in line with the lender’s fiscal year.
The regulator says consumers will not see an increase to their monthly payment requirements as a result of this change, nor will the move impact new homebuyers.
Bank of Canada data shows combined loan plans that are above 65 per cent loan to value account for $204 billion of the country’s $1.8 trillion in total outstanding residential mortgages.
OSFI Serves Up A Nothingburger of Mortgage Rule Changes
The Regulator has obviously decided that Fixed Rates Doubling and Prime Rate Soaring will have the effect of reducing the public’s desire to buy rentals with HELOC down payments
Perfect example of a “Captured” Regulator https://t.co/kx14g7GLro
— Ron Butler (@ronmortgageguy) June 28, 2022
These updates will have no perceptible effect on Canada’s housing market.
Once a borrower pays down his/her readvanceable mortgage to 65% LTV, then the principal payments could start readvancing to the HELOC (i.e., freeing up more HELOC credit).
— Rob McLister (@RobMcLister) June 28, 2022
OSFI says “nobody will be impacted at this time” from today’s change to readvanceable mortgages. The implementation for big banks is Oct 31, 2023.
“Consumers with CLPs (readvanceables) will not see a change to their product structure until their next renewal after these dates.” https://t.co/OqMNUuXcQd
— Rob McLister (@RobMcLister) June 28, 2022
After warning for years that home equity withdrawal was fueling speculative housing demand, financial regulator OSFI finally gets a chance to, you know, REGULATE, and instead comes out with this turd of a “policy change” https://t.co/O0M5ojLhqv
— Ben Rabidoux (@BenRabidoux) June 28, 2022
The head of #cdnpoli‘s banking regulator takes to @financialpost to explain why he’s tightening #cdnecon mortgage rules:
Peter Routledge: Why OSFI is increasing the margin of safety for real estate secured lending https://t.co/UYapI5IoQn
— Kevin Carmichael (@CarmichaelKevin) June 29, 2022
This report by The Canadian Press was first published June 28, 2022.