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The Effect Of Extending Mortgage Amortizations On The Toronto Real Estate Market

Welcome to Canadian Real Estate, Housing & Home.

Allow me to introduce myself! I’m Steve Fudge and I’m celebrating over three decades as a realtor, property consultant, and proud resident of Toronto, Ontario, Canada.

Today I’m sharing one of my May 2023 articles from my Toronto website that offers my perspective on the big banks extending the mortgage amortizations of almost one-third of Canadian households. Will it save the Canadian real estate market from crashing?

Read on.



Does your jaw drop every time the cashier at the grocer tells you the total cost of your purchases? Or when you fill up the gas tank of your vehicle? Or when you open a utility bill? Mine does. Given Canadians have been accustomed to an Inflation Rate of around 2% for the past 25 years, it’s been disconcerting seeing costs for essentials jump dramatically. Although the current Inflation Rate is at 4.41%, down from 5.90% in January and 8.10% last summer, it still hits hard.

The same goes for variable mortgage interest rates, which until last year had been in the 2 to 3.25% range since 2009. But in March 2022, the Bank of Canada began implementing 8 interest rate hikes totalling 425 basis points over an 11-month period. Why? To try to combat inflation!

Both skyrocketing inflation and escalating interest rates were unexpected. And it’s hitting the folks with variable-rate mortgages that became extremely popular after the outbreak of the COVID-19 pandemic the hardest. Why? Because they’re tied to the Bank of Canada’s posted interest rates. In 2020, interest rates were slashed extremely low in 2020 to mitigate the economic impact of public health restrictions and potential widespread business closures. Furthermore, the Bank of Canada also pledged it wouldn’t raise the benchmark rate until the second half of 2022. That saw the share of variable rates mortgages in Canada leap from 10% in early 2020 to peak at 56.9% at the beginning of 2022 – just before the Bank of Canada began its rate escalation.

As I explain below, consumers with variable-rate mortgages are the first wave of homeowners to be hit financially, but it’s also impacting property owners who bought 3 to 5 years ago at lower interest rates as their existing mortgages come up for renewal, and anyone who used their HELOC’s to purchase an investment property, or a cottage, or renovate their primary residence. And when this is coupled with the substantial increase in food, fuel, and other living costs, thanks to high inflation, many homeowners are finding themselves stretched uncomfortably thin.

Unfortunately, it’s exactly these sorts of unanticipated circumstances that blindside a population at large, of which a portion unwittingly find themselves financially underwater. And if they happen to be one of the two-thirds of Canadian households that own property. this might see them begin to default on their mortgage payments or force them to preemptively sell their residence. However, despite our challenging market conditions, and the knowledge that many homeowners are over-stretched, this isn’t happening in large numbers right now. And the main reason for this is that Canada’s big banks are relying on a practice we’ve never seen used to such a large extent before. They’ve allowed many homeowners to extend the amortization period on their mortgage debt.

On the surface, this solution seems like a good option for financially-strapped homeowners. Regulators have invited homeowners to apply for hardship and, in order to make payments more manageable, extend the amortization of their mortgage to up to 40 years for the balance of the term. This immediate reprieve buys the property owner more time to sort out their financial affairs. It also helps property owners who found the new higher mortgage costs untenable from defaulting on their debt and triggering a power of sale, which is a standard provision in most mortgage charges that permits the lender to sell a borrower’s property if they’re not meeting their debt obligations. However, extending one’s amortization does come at a cost – a substantial one in fact – because it requires homeowners to pay significantly more interest costs over the extended period.

Here is an informative Globe and Mail article: “OSFI Warns Of Longer-Term Risks As Banks Extend Mortgage Terms To Help Borrowers“.

This doesn’t just have implications for homeowners and their financial solvency either. Banks, while having the opportunity to generate more profit from interest income, are inherently creating a spot of vulnerability by extending loans longer.

Why? Because many of the existing variable rate mortgages, once the new higher interest rates have been applied, are no longer considered “affordable”. In fact, it’s feasible that at the time of renewal, the homeowners may not qualify to renew their existing mortgage at the current interest rates based on a 25-year amortization.


* Courtesy of the Toronto Star, with thanks.


Regulators Allow Lenders To Restructure Mortgages To Stabilize The Economy

Not only do lenders want to avoid having to dispose of properties under Power Of Sale provisions because of an owner’s default in payment, but the Canadian government has a vested interest in keeping homeowners in their homes. After all, housing plays a crucial role in all levels of the economy, especially when it’s an asset-based economy.

As I wrote in The Implications Of Moving Toward An Asset-Based Economy (February 2020), an asset-based economy functions whereby equity-based assets like real estate or stock market equities – rather than goods and services – promote economic growth. It’s the appreciation of these assets that grow wealth and increase net worth while creating economic momentum for the national and/or local economies.

The benefit of an asset-based economy is that it can be used as a temporary measure to stimulate economic growth. The problem with an asset-based model is that it hinges heavily on low-interest rates in order to permit borrowing and purchasing, which will theoretically help to increase asset prices. Furthermore, this model is often attributed to boom and bust scenarios (i.e. economic bubbles). When these bubbles burst, they very often trigger recessions. An asset bubble forms when demand is heavy and propels value, but when the underlying economic fundamentals are not strong enough to sustain it.  All of this happened in the wake of the subprime crisis in the U.S.A. a decade ago. And it looks like this is what Canada may be facing.

As I wrote in my mini-rant post –> Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs?  homeownership shackles us to a lifetime of debt serfdom, which homebuyers are increasingly seeing as a means to an end. Not only does taking out mortgages feed the money merchants of our capitalist machine, but having your citizens enslaved to a mortgage makes them more complacent and cooperative. Plus <insert drumroll> collective widespread homeownership plays a socio-economic role that figures into Government policy, and secondly – and more importantly – it is a revenue stream. Homeownership has always been encouraged by multiple levels of Government, because it’s a means to line Municipal, Federal, and Provincial coffers alike.

The trouble with this is that, according to Better Dwelling (December 2021), Canadian Real Estate represents about 13% of Canada’s GDP, which means the country is heavily reliant on the shelter economy. Not only is this high level of concentration economically risky, but Canada’s propensity to funnel capital into real estate assets has been at the expense of private-sector investment in research and development, productivity-enhancing industries, and workforce upskilling, resulting in a productivity problem that has been going on for well over a decade. As we lose our ability to compete economically with more and more countries, we’re painting ourselves into a dunce cap corner with fewer means of egress.

As a result, if large numbers of property owners were to default on their debt and become displaced because of skyrocketing inflation and rapidly increasing interest rates, there would be a significant financial and social impact across Canada. Because of this, it’s critical for the welfare of the country – and every politician in power – to ensure property values stop declining and instead stabilize or, ideally, go up.

After all, every level of government actively creates policies to drive the shelter economy. Consider checking out my post called How Canada’s 3 Levels Of Government Shape Housing Policy & Programs to learn more.



Calamity Averted?

If debt-laden homeowners were simply left to fend for themselves and ended up defaulting, in addition to creating economic chaos (and spurning a massive spike in Toronto’s already top-dollar market rents), CMHC – a crown corporation – holds about 35% of existing insured mortgages which could have taxpayer implications if there was widespread default. This may be why at the forefront of this year’s budget, the option for lenders to restructure mortgages to help strapped homeowners was mentioned, even though my understanding is that in 2016 lenders were granted the right to change amortization periods when deemed necessary.

Here is The 2023 Budget – where on Page 55 it states: “the federal government, through the Financial Consumer Agency of Canada, is publishing a guideline to protect Canadians with mortgages who are facing exceptional circumstances. Specifically, the government is taking steps to protect Canadians and ensure that federally regulated financial institutions provide Canadians with fair and equitable access to relief measures that are appropriate for the circumstances they are facing, including by extending amortizations, adjusting payment schedules, or authorizing lump-sum payments. Existing mortgage regulations may also allow lenders to provide a temporary mortgage amortization extension—even past 25 years. This guideline will ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges, which will help more Canadians afford the impact of elevated interest rates”.



Extending Amortizations To 30+ & Even 40 Years

Typically, property purchasers tend to qualify for mortgage financing based on the debt being paid over a 25-year amortization. There is the option to compress this, but then payments are higher, and depending on the amount of debt a household has, can cause debt vulnerability. Buyers typically have been better off closing on a property purchase with a 25-year amortization and using mortgage pre-payment and matched payment options to pay their mortgage down more quickly.

However, the 25-year amortization is no longer the automatic norm, as is discussed in this Toronto Star article, entitled, “Almost One-Third Of Canadian Homeowners WithA Mortgage Now Have Amortization Periods Of More Than 30 Years“. Many of the big banks are reporting a significant shift of borrowers to a 30-year or longer amortization.

What is interesting is how many banks are doing this, and the rate at which it is happening. (CIBC at 30 percent, BMO, at 32 percent, and RBC at 25 percent). The proportion of mortgages with amortization periods longer than 30 years is 30 percent overall.

What is also interesting is, when compared to a year prior in Q1 2022, when rate hikes had yet to cement their impact in borrowing, few banks actually had mortgages with 30-year + amortizations and for those that did, the number was small too. In fact, only three of the six banks had amortizations longer than 35 years at all, and of those that did, the proportion was minuscule – particularly in comparison with today’s numbers, as this Better Dwelling article expounds: “Canadian Banks Are Extending Amortizations Over 35 Years To Avoid Defaults“.

The big fear when rates were steadily climbing was that there would be a similarly swift uptick in delinquencies, which is almost a given when coupled with high inflation and a big jump in interest rates. What’s interesting to note is that while debt delinquency has crept up across all types of debt – it hasn’t in the mortgage field, yet. One of the reasons is likely the result of extending mortgage amortizations on variable-rate mortgages that would otherwise be peaking during the first half of this year. The second is that banks have been increasingly choosy in who they lend money to since 2016, so the defaults and subsequent Power of Sales are showing up with B lenders. But it’s still early. What comes next is the impact of new interest rates on fixed-rate mortgages as home loans with low rates expire and are replaced or renewed at higher rates through 2023 and 2024. It’s important to note that mortgage delinquencies do tend to lag other credit products.

Here’s a second Better Dwelling article for your pleasure: “Canadian Credit Delinquencies Are Rising For Everything But Mortgages“.



What Is Negative Amortization?

As interest rates have been rising, the most sensitive and vulnerable borrowers have been variable-rate mortgage holders.

Many variable-rate mortgage holders pay a fixed payment every month, with varying amounts being applied to principal and interest, depending on the interest rate at the time. With Canada having had extremely low rates over an extended period of time, homeowners with this type of mortgage would have become relatively accustomed to applying more towards the principal amount of the loan – which of course is the goal – to pay off the mortgage.

However, with rising rates, less is going towards the actual debt, and in some cases, mortgage holders are finding that all of their payment is going toward servicing the interest. In some cases, their payment isn’t covering all of the interest, which creates a negative amortization, which in short, can create a scenario where homeowners owe more than their home is worth.

While lenders are able to set their own policies around this, and CMHC, for example, does permit a certain degree of negative amortization, it’s a risky idea. Just look at what happened in the U.S. during the subprime mortgage crisis, which triggered a similar scenario. People bought more houses than they could afford in real life, based on what was permitted by policy.

We benefit in Canada from a highly regulated banking system, which in large part is why we did not suffer the same economic fate as the U.S. during that crisis. Canada also introduced the mortgage stress test for insured mortgages in 2016 and for uninsured products in 2018 which has likely cushioned the blow of the interest rate increases. However, it seems that with the extended amortization practice in place, lenders knowingly allowed Buyers to buy more housing than they really could afford in the first place. It’s like the extended amortization policy was purposely in place to override the original lending policy if necessary. And while I like to think it was done to serve the clients, the real winners here are the banks.



The Role Of Policy & What Is Coming Down The ‘Housing Pipeline’ ^

That brings into sharper focus the question of affordability. While the stress test that came into place to remove at-risk buyers from the pool, it seems that, given the sheer number of people who are extending their amortizations, it didn’t do enough to tamper that financial vulnerability.

In an interview with the Globe and Mail – “Big Mortgages, Few Listings, And Fierce Competition: Welcome To The Spring Housing Market Of 2023” – James Laird, co-chief executive officer of financial product comparisons site, and president of mortgage lender CanWise acknowledged that home prices have not come down enough to make up for interest payment costs one would pay today using the stress test.

Without question, the impact of lenders extending mortgage amortizations is that it is stabilizing the housing market and property values. This is good news for the nearly two-thirds of Canadians who own property. But if I were a first-time Buyer I’d be pissed because if owners were defaulting on their mortgages the supply would be increasing and prices would be dropping. In fact, the big banks are effectively regulating the housing market, meaning that it isn’t a free market but one that is highly calculated and contrived. And, clearly, it is not helping Canadian housing to become more affordable. It’s propping it up.

In fact, by propping it up the banks are ensuring there isn’t much supply coming to market for sale. In my January post called –> Is The Toronto Condo Market In A Precarious State? I wrote “For the next few months, I anticipate we’re going to see some buoyancy in the Toronto real estate market, which may fall under the definition of a “Bull Trap / Return To Normal” whereby a declining market reverses after a convincing rally or pent-up demand, and then stalls after that demand is absorbed and returns to its decline. As a realtor who weathered the Toronto real estate crash that went from bad to worse over a six-year period from 1989 to 1995, I want to gently remind you, dear reader, that we’re only just at the beginning of managing challenging inflationary issues and the significant interest rate escalations, It’s not even under control. Meanwhile, lenders are being ignorant of the risk they may find themselves holding a lot of keys to empty dwellings being sold under Power of Sale with no Buyers because everyone is already financially over-extended trying to hang onto whatever real estate assets they own.

We universally know the Federal government has set aggressive immigration targets, which is an excellent strategy to poise Canada for growth and to fill in the skill and employment gap that many industries are facing – now and as more Canadian boomers retire (particularly affected are manufacturing, health care and construction). But it also means more people will need somewhere to live, which is already clearly a problem. And shelter costs will have to align with their household incomes to be affordable, or they’ll relocate elsewhere, which would clearly perpetuate the problem.

Immigrants traditionally settle in Canada’s larger cities, where they have established communities, and it is the larger cities – particularly Toronto that is already experiencing an affordability crisis – whose ability to welcome new arrivals hinges on supply and demand.

The government has come under fire recently around these targets, given supply needs to ramp up in a hurry. In fact, the report referred to in this Toronto Star article – ‘We Have To Wake Up Here’: Canada Must Build Record Number Of New Homes To Keep Pace With Immigration, Report Finds” –  found that supply needs to increase 50 percent through 2024 (which works out to about 100,000 more housing starts on average annually in 2023 and 2024).

Unfortunately, these targets are impossible because of our construction capacity constraints. Furthermore, our bureaucracy can’t handle executing the logistics as quickly as required. As the article suggests, there should be a directive that hands municipalities more control in executing the shelter objectives of all three levels of government. It’s already clear that it’s not enough to grant the green light to build; housing needs to be built quickly, and municipalities can push things along more quickly at the local level.

Here are some more articles on concerns around housing supply and immigration from CBC and the Financial Post: “Anxiety Spikes Over Housing Amid Canada’s Plan To Welcome 1.5M New Citizens By 2027” and “CIBC’s Dodig Warns Canada Risks ‘Largest Social Crisis’ If Housing Supply, Immigration Don’t Match“.



Manipulation Through Demand Incentives 

This may surprise the younger generations but back in the 1990s When Dreams Of Domesticity Became Nightmares (My Recollection Of The 1989 Toronto Housing Market Crash), Toronto had a multitude of shelter options while the condition of our housing ranged from derelict to delightful. The main reason lies in Toronto’s history as a gritty working-class centre of manufacturing and trade that, starting in the 1880s produced bricks, beer, bikes, boots, and booze, as well as furniture, clothing, machinery, and food production. And during that time, all the goods that were produced were either shipped to their destinations from the Port of Toronto or transported by train via Canada’s network of rail lines. As a result, the dominant building typology in downtown Toronto were multi-storey factories and warehouses, which were surrounded by multi-cultural working class neighbourhoods. To see some examples of our old factories, here’s my post called A Short History Of Toronto’s Fashion District And Art Deco Architecture.

However, with the rise of the automobile that would in turn fuel the growth of the suburbs, in 1950 the construction of the Trans-Canada Highway that would span the country from coast to coast began. Although it would take 21 years to finish, by the time the Trans-Canada Highway was complete trucking had become the most efficient and economical way to transport goods. Rather than operate inefficiently in aging brick buildings bound by the grid of narrow city streets, those manufacturing industries that survived the impact of globalization in the 1970s and the Free Trade Agreements of the 1980s relocated to new modern one level industrial buildings next to the highways, not only for the ease of transporting goods but for the convenience of its workers who now lived in the post-war suburbs.

As  manufacturers and industry abandoned the downtown core for suburban pastures, many of the old buildings were demolished to become parking lots because property owners did not have to pay taxes for vacant lots. Those that remained were often boarded up, or carved into studio spaces that were rented for cheap by artists. The aging post war generation of working class immigrants living in their Victorian and Edwardian houses throughout the central core rented out their basements and upper floors for an income supplement in retirement, or they moved to the suburbs to live with their adult children and the house was carved up into affordable rental housing. And when the Toronto real estate market bubble burst in 1989, in part due to an oversupply of new rental and condominium housing, literally everyone had access to the shelter of their choice – affordable or otherwise.

For a housing market to truly be balanced, it requires having more housing typologies available than there are occupant profiles in need. And in the 1990s Toronto had many kinds of shelter options available, including rooming houses, student dormitories, SRO Hotels, the YMCA, basement apartments, a floor of a ramshackle or renovated multi-unit Victorian or Edwardian 3-storey dwelling in any number of ethnic neighbourhoods, coach houses, warehouse art studios, purpose-built rental apartments in low-rises, mid-rises or high-rises constructed anytime over the past 70 years, co-ops, co-ownerships, cohousing collectives, budget condos or a luxury ‘house in the sky’ condos. Rents started at $350. And no, they were not all meeting building and fire code requirements. In fact, most weren’t.

Now the moment these types of shelter options diminish, or the costs to rent these exceed the income of the population, the best way to resolve this is for government to create a supply of the lacking shelter types and ensure the rents are geared to the incomes of the end-users requiring them indefinitely through rent control.

In concert with creating the required supply, the government needs to reexamine its policy around demand. Clearly, if the bank regulators are allowing lenders to extend amortizations to keep homeowners in their dwellings and prevent (or stall) the collapse of the housing market, they’re not really committed to ensuring shelter is affordable to those homebuyers who are currently priced out of the market. If they were, they’d let the market collapse, right?

So why does the government invest so much money into creating demand-side incentives to entice Buyers into the market? For example, the Government of Canada has the First-Time Home Buyer Incentive that allows Buyers to put a down payment of as little as 5% of the purchase price providing the purchase price does not exceed $999,999 and the Buyer agrees to incur the cost of mortgage loan insurance from CMHC, Genworth, or Canada Guaranty while the government’s First Home Savings Account (FHSA) permits a Buyer to use up to $40,000 in their tax-free savings account towards their first-time property purchase.

Presented as measures aimed to reduce housing inequality and help Buyers get onto the property ladder, what it really does is ensure a steady supply of Buyers competing for the least expensive properties. This pushes prices up further, elevating the affordability crisis and indebting more of the population into debt serfdom and political complacency. Drink the koolaid, folks!

In my recent post –> High-Ratio Homebuyers Take Advantage Of Price Moderation In Toronto Real Estate where I share how high-ratio Buyers – who cannot purchase a dwelling for any more than $999,999 – were the first pool of purchasers to lock down a property purchase as interest rates escalated, I was surprised to find that:

  • In 2019, over 50% of freehold sales in the City of Toronto’s 35 MLS Districts were under $999,999
  • In 2020, that dropped to 38.5% of freehold sales
  • In 2021, it fell further to 20% over freehold sales
  • And in 2022 only 6% of sales sold for $999,999 or less

As more and more high-ratio Buyers entered our FOMO market the supply of properties shrank, in part because demand exceeded supply, but also because realtors were counseling their Buyers with more than 20% down to offer $1,000,000 in order to eliminate any worry of competition from high-ratio Buyers. This, of course, pushed values higher and faster.

Instead of manipulating the demand side of the market, the sustainable long-term solution is to increase the supply of affordable housing. And while I applaud the Rapid Housing Initiative and the $4-billion Housing Accelerator Fund that offer local governments financial incentives to increase the supply of housing quickly, with bonusing for affordable housing I believe CMHC should get back in the business of directly building housing as they did pre-1992, with an Urgent As-Of-Right Mechanism developed that allows new housing that meets certain ‘needs criteria’ to be fast-tracked instead of winding its way through three levels of bureaucracy getting reviewed, revised, and rejected.



Slow & Steady Wins The Race

Interest rates were artificially set low during the pandemic, and this cheap debt provided by lenders became the tool that enabled people to pay huge prices for housing. Now indebted homeowners are looking to lenders to help them keep those same homes – for now.

The core of the issue is affordability and debt. Prices need to pull back more, and homeowners need more wiggle room in their household debt, as is discussed in this CTV News article: “Amortization Extensions Open Questions About Home Affordability.”

Think back to the huge interest rates of the 1980s; life was simply more affordable despite the fact that the cost of borrowing was substantial. This was because the amount that people borrowed was more relative to their incomes and their means. They didn’t need policy to afford their homes; they bought what they could afford, paid it down, and amassed wealth in a slow and steady fashion.

Really and truly, what is at the heart of this is that homeowners have equated being able to afford a home with qualifying for a mortgage. If the lender supports it, it must be doable. People are desensitized to debt, a fact underscored by this increase in amortizations, which says that if mortgage payments today – are unaffordable, they are in fact, unaffordable. Creating a framework to make them smaller, but making a purchase substantially more expensive, doesn’t make something more affordable; it erodes wealth.

And that may very well be the problem facing homeowners generations from now. Homeowners have paid any price to buy housing, assuming it will keep climbing and that will offset the debt. However, when housing prices slow their ascent, while the debt balloons – and extends, that gap between own and owe is sadly, persistently smaller.

This market correction is not over. It’s going to take some twists and turns. So if you’re making a purchase be prudent and be prepared to hold for the long term.  As long as you remain rational, prudent, and trust your intuition, you got this, ok?



Want to have someone on your side?

Since 1991, I’ve steered my career through a real estate market crash and burn; survived a slow painful cross-country recession; completed a M.E.S. graduate degree from York University called ‘Planning Housing Environments’; executed the concept, sales & marketing of multiple new condo and vintage loft conversions; and guided hundreds of clients through the purchase and sale of hundreds of freehold and condominium dwellings across the original City of Toronto. From a gritty port industrial city into a glittering post-industrial global centre, I’ve navigated the ebbs and flows of a property market as a consistent Top Producer. And, I remain as passionate about it today as when I started.

With over 30 years of experience in navigating the-at times-choppy waters of Toronto real estate, consider contacting me at 416-845-9905 or email me at It would be my pleasure to personally introduce our services.



If you enjoyed this blog, you may find these posts helpful and interesting:

High-Ratio Homebuyers Take Advantage Of Price Moderation In Toronto Real Estate

Turning A Blind Eye To The Real Costs Of Toronto Real Estate Investment Properties

Dear Urbaneer: For Toronto Property Investors, What Are The Pitfalls Of Buying Older Dwellings?

Is The Toronto Condo Market In A Precarious State?

Topsy Turvy: Insights From The Toronto Real Estate Trenches

Rising Interest Rates And The Toronto Real Estate Market

How Canada’s 3 Levels Of Government Shape Housing Policy & Programs

The Affordability Conundrum For Toronto House Buyers: Location, Condition & Costs

The Number Of Owners With Multiple Properties Is Increasing In Toronto. Here’s Why!

The Growing Trend Of Financial Landlords In Toronto Real Estate

Dear Urbaneer: What Are The Closing Costs For A Property Purchase?

When Dreams Of Domesticity Became Nightmares: A Recollection Of The 1989 Toronto Housing Market Crash




Thanks for reading!

– Steven

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