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OSFI makes real estate loan changes aimed at reducing lender risk

OSFI makes real estate loan changes aimed at reducing lender risk

OTTAWA — Canada’s banking regulator is tightening requirements for some types of real estate loansto protect homeowners who may be at greater risk from higher interest rates.

The Office of the Superintendent of Financial Institutions says changes affect combined loan plans like reverse mortgages or loans with shared equity features, which have grown in popularity in recent years but may be riskier for lenders.

For borrowers who owe more than 65 per cent of the loan value, a portion of their payment must to go toward the loan principal rather than to interest until they bring the loan below that threshold.

OSFI says the changes will generally take effect the next time borrowers renew their plans after the end of fall 2023, in line with the lender’s fiscal year.

The regulator says consumers will not see an increase to their monthly payment requirements as a result of this change, nor will the move impact new homebuyers.

Bank of Canada data shows combined loan plans that are above 65 per cent loan to value account for $204 billion of the country’s $1.8 trillion in total outstanding residential mortgages.

This report by The Canadian Press was first published June 28, 2022.

The Canadian Press

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