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Large mortgage lenders let borrowers roll unpaid interest onto principal to cope with rising costs


At least two of Canada’s largest mortgage lenders allow borrowers to shift some of their interest costs onto the principal amount owed on their mortgages, helping them manage the impact of rising interest rates.


Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T adjustable rate mortgage products are not new but will be tested in this rising interest rate environment.


With interest rates up 3.5 percentage points so far this year, borrowers risk defaulting on their interest payments and increasing the amount of their original loan.


Both TD and CIBC have adjustable-rate mortgages similar to those of most other major lenders: the loans have constant monthly payments, and the interest rate on the mortgage is linked to the Bank of Canada overnight rate.


But TD and CIBC allow the original loan amount — the mortgage principal — to grow under certain circumstances. It is not clear if the Bank of Montreal will allow BMO-T to do this. The other two major lenders, Royal Bank of Canada RY-T and Bank of Nova Scotia BNS-T, will not allow a capital increase.


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