Bank of Canada's Rogers urges shift by banks on mortgage lending

Canadian banks and regulators should take a hard look at mortgages that have allowed some households to run up large amounts of long-term debt as interest rates went up, the Bank of Canada’s no. 2 official said.

Carolyn Rogers, the Bank of Canada’s senior deputy governor, said in an interview that the number of so-called “negative amortization” mortgages is a concern. The loans have that label because they allow the borrowers to pay fixed payments, even as interest rates rise.  

In the short term, that reduces the shock of higher borrowing costs. But the flip side is the amortization period — the time it takes to pay off the loan — is extended by years or even decades. Rates have gone up so quickly that there are now more than $200 billion (US$146 billion) in mortgages in Canada with very long amortization periods; many borrowers are paying little to no principal on them. 

“I think that product needs a close look and I think it’ll get a close look,” Rogers told Bloomberg News, shortly after she attended a meeting with senior bank executives in Toronto on Friday. “I think you’ll see the industry reflect on how much they want to offer that product.”