Over-leveraged homeowners remain vulnerable to lenders
BNN Bloomberg
A much anticipated federal clampdown on a new mortgage product that sinks over-leveraged homeowners deeper into debt has fizzled.
The product is called a readvanceable mortgage. It combines a traditional mortgage with a revolving line of credit that increases in size as the homeowner pays down the principal. It allows them to immediately re-borrow, even when the total loan exceeds the 65 per cent limit of the appraised value of the home.
Including the amortized portion, homeowners can borrow as much as 80 per cent of the value of their homes, minus any outstanding debt on the original mortgage.
This week, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), acknowledged the risk of having homeowners in persistent debt and will require borrowers to pay both the principal and interest on any combined loan amount above 65 per cent of the home’s value starting in late 2023.