The Loonie Hour Canadian Banks Brace for Mortgage Renewal Wall
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Feb 28, 2025 Canadian banks are grappling with rising loan loss provisions amid a wave of mortgage renewals. Overconfidence among bankers clashes with an uncertain market, reflecting unrealistic expectations on housing recovery. The bond market is showing signs of concern about weaker growth, while U.S. policy changes could impact Canada significantly. A major lawsuit against BlackRock raises questions about ESG investing and shareholder priorities, amid discussions about global trade dynamics and increasing volatility in the economic landscape.
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Stringent Mortgage Requirements
- Canadian banks offer mortgages up to 95% loan-to-value, requiring borrowers to meet stringent criteria.
- Many borrowers struggle to meet these requirements, especially those in transition.
Exploding Amortizations
- Canadian mortgage amortizations are exceeding 100 years due to rising interest rates and fixed payments.
- This leads to deferred interest being added to the principal, increasing the loan balance.
Mortgage Renewal Challenges
- Upon renewal, borrowers must return to their original amortization schedule or refinance.
- This can lead to significantly increased payments, forcing borrowers to find extra funds, refinance, or sell.