20% of CIBC Mortgages Have Reached Their Trigger Rate;
Thanks to skyrocketing interest rates, one out of five Canadians who took out a mortgage with CIBC can no longer afford the interest portion of their loan.
In a footnote included in CIBC’s latest quarterly financial statements, 20% of the bank’s residential mortgage holders have reached their trigger rate, meaning that their monthly payment can no longer cover the interest portion of their loan. In other words, the bank is now increasing the amortization period on $52 billion worth of mortgages out of its $263 billion residential loan portfolio.
Other than that, all is well.
And, “official” inflation is still <6%…
One in five CIBC house loaners are fckn idiots. Or maybe they can get another job and quit belly-ackin aboot reality.
Most people don’t understand the consequences of stretching amortization periods. For the debtor, it’s great. For the bank, it saves them the hassle of foreclosure. But for the investor in the bank’s bond portfolio, it’s basically fraud. It’s not so nice to find out that the money you invested and that was supposed to be released to fund new investments on a certain date will be stuck in the portfolio for another 5 or 10 years.
What do you think happens to investments when the capital intended to fund them can’t be accessed? A recession, that’s what happens.
Look up the Liberty Bond default of 1935 to see how bad things can get:
https://mises.org/library/short-history-us-credit-defaults
Absolutely right, Dennis. Couple of thoughts;
1) Mortgages where the payment didn’t even cover the interest is what led to the housing crisis in the US in 2008/2009, and
2) Extending the amortization period results in diminishing returns. In 2004, I had a $300,000 mortgage (I know, it seems quaint by today’s standards but houses were cheaper then!) Instead of a 25 year amortization, I took it over 10 years. The payments were $3000 a month which was a challenge at the time. However, two-thirds of the payment went towards principal and I paid it down by $100,000 in 4 years, at which point I sold the house. Longer amortization just postpones the inevitable and makes you even more of a renter in ‘your own’ home than you were previously.
I expect we will see banks bundling the poorly performing mortgages into mortgage backed securities and selling them to the government (perhaps CMHC), because it worked so well in 2008 and also because the guvmint is designed to piss away taxpayers money. Somehow the taxpayer will ultimately lose.
And how many of those would snap up the Trudeau proposal to take over the mortgage and live in a ‘rental’ til they die? This is the WEF plan in action.
Since the 60’s we have chosen ease and safety over the satisfaction and joy (Yes. Joy.) of The School of Hard Knocks.
True, there is also the fact that those “rentals” both commercial & residential are owned by landlords with mortgages that either need to increase rent prices, evict tenants, or face default themselves.
Whether you rent or own a mortgage, your cost for shelter is going up.
Not to mention the continually increasing property taxes. You don’t really own your house.
Working for your bowl of gruel and a lumpy unheated cot reminds me of something.. Slavery..
They call it “Progressive”.
People voted for this, so …
Heh. Don’t imagine the situation is any better at Farm Credit Corporation.
We saw the same thing back in the early 80’s when the interest rate was cranked up to 20+%. People walked, banks foreclosed and made out like bandits for the most part.
This time around the “we are here to save you” govt. in cohoots with the banks, will sweep in and pick up all the homes for a song and back fill them will all their new Liberal voting, complacent migrants. Bye, bye, old stock whiteys.
It always begs the question why these people didn’t lock in at a lower rate, because the rate increases were inevitable, and in small steps…
and of course the answer is either:
a) thought the rise would be temporary
b) couldn’t refinance because they took a variable closed mortgage and couldn’t afford 3 months of interest payments
c) are on CMHC insured mortgages
d) the banks refused to refinance because the borrower couldn’t qualify under the new rates and stress test
My money is on (d).
Well dang,who knew that the street dwellers were just showing us the future.
“You will own nothing and like it”.
Also means you will take no pride in ownership,nor will you “invest” in the future.
Why fix it?
Not my problem.
Why pay? The street is calling..
Old RVs are becoming the best investment,as long as it can roll from squat to squat.
This “news” from CIBC, is it true?
Or is that just as high a number as they are willing to admit?
For since the Ottawa experience,nothing our Banks tell us can be trusted.
Their word is worthless.
They froze private accounts,without warrant or even good legal advice.
They broke the contract all to pieces.
And behind the scenes,they advised Dear Leader to go to even more idiotic extremes.
What would you bet,the Run on Canadian Banks continues and CIBC is even more “financially troubled” than they admit?
I consider my banker to be “idiots with a bucket of money.” They have no clue about my industry, they only have a vague idea of balance sheets involved. “You should take out hedge protection” on your production. They even have their own division involved in such hedging. Answer me these questions… They can’t. They don’t understand it themselves.
Move up a level in the industry to Process & Marketing. “Our bankers are OK with our plan.” Of course they are. They are idiots with a bucket of money. As long as the interest payments are made, they are fine. When the default happens, they take your equity, and haircut their investors for the difference.
Interest rates going up? Sucks to be you, we’re just a pass through. Interest rates dropping? Yah, we’ll lower them at our pace (unless you are able to refinance somewhere else)
London bankers were traditionally associated with Lombard Street, and “LOMBARD” became a marketing acronym: “Lots Of Money But A Real Dickhead”.