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Bank of Montreal: 20 percent of variable mortgage holders have increased their payments

Bank of Montreal: 20 percent of variable mortgage holders have increased their payments

By م.زهير الشاعر

Published: March 5, 2023

Periods of mortgage payment difficulty continue to grow at BMO due to rising interest rates, but the bank said about one-fifth of its clients with variable rates have proactively increased their payments.

The issue of increasing amortization periods is not unique to the Bank of Montreal, but is also seen among variable-rate mortgage clients at other major banks.

This is because the Bank of Canada has raised interest rates over the past year, and those with variable-rate fixed payment mortgages have seen a significant increase in the portion of their payments allocated to interest costs.

For some, their entire monthly payment now goes towards interest, leading to negative amortization as the amortization period increases.

BMO said it does not ask these clients to increase their payments until the mortgage renewal date, at which point the contract returns to the original payment schedule, "which may require additional payments."

About one-fifth of BMO's mortgage borrowers will renew in the next 12 months.

On the other hand, Biyush Agrawal, BMO's Chief Risk Officer, said during a call about the bank's first-quarter earnings: "As part of the strong relationship between the bank and consumers, we don't have to tell them to pay more now."

Explaining, "The product allows them to pay when they can. We have seen many clients and 20% have already invested more money."

Adding, "But we believe the average increase, by the time of renewal, is fully manageable for our clients."

Bank of Montreal (BMO) noted that the share of mortgages with remaining amortization over 30 years is swelling to nearly a third of its portfolio as of the first quarter.

This represents an increase from zero a year ago.

Of BMO’s $142 billion mortgage portfolio, 44% of loans are variable-rate.

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