(Reuters) – Canada’s banking regulator on Tuesday proposed changes to capital adequacy guidelines for lenders and insurers to help them better manage mortgage risk.
The Office of the Superintendent of Financial Institutions (OSFI) says changes to capital adequacy requirements (CAR) and mortgage insurer capital adequacy test (MICAT) guidance will provide lenders with more capital to address risks and liabilities Mortgage related in amortization.
Negative amortization is a situation in which a borrower owes an increasing amount of money due to insufficient repayments to pay the interest due.
OSFI says: “Proposed reforms should encourage banks to reduce mortgage volumes, which could otherwise result in negative amortization.”
Canada’s record pace of rate hikes leads to longer repayment periods Variable-rate mortgages, many with maturities longer than years, help insulate households from higher borrowing costs but add to debt loads and worry regulators.
The regulator, which has sought feedback on its proposals to be published by Sept. 1, said the changes would not result in an increase in consumers’ monthly payments.