Canada should boost mortgages with longer terms, Desjardins says

Canada should take steps to introduce more mortgages with longer renewal terms, according to the country’s largest financial co-operative.

More mortgage options, specifically those with 10-year terms, would help contain “payment shocks” faced by households when they renew their debt obligations after interest rates have increased, according to a report released Monday by Desjardins.

That would also lower the economy’s sensitivity to higher borrowing costs, and likely reduce the need for the now-widespread use of so-called “negative amortization” fixed-payment variable products, which the country’s bank watchdog and the Bank of Canada have flagged as a concern.

Homebuyers in Canada have long shunned mortgages that fix rates for a decade because they’re much more expensive. “If the option to lock in 10‑year mortgage terms had been more prevalent and attractive, the payment shock would have been more manageable for households opting for it,” Chief Economist Jimmy Jean and Macro Strategist Tiago Figueiredo say in the report.