Canadian Housing Woes: Rising Mortgage Struggles and Negative Amortization Create Banking Pressures

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The financial situation in Canada is showing some concerning signs of strain:

Around 24% of mortgage holders in Canada are currently struggling to meet their monthly payments, according to data from the Canada Mortgage and Housing Corporation.

Additionally, three major Canadian banks, including BMO, TD, and CIBC, have revealed that roughly 20% of their residential mortgage borrowers are in a state of negative amortization. This means that these borrowers owe more on their mortgages than they originally borrowed, totaling nearly $130 billion in loans.

This scenario is putting significant pressure on Canadian banks, and it highlights the urgency of reducing interest rates. If rates remain high, the problem of negative amortization will persist, causing borrowers’ mortgage principal to continue rising even in a declining housing market.

The concern is compounded by the fact that many average house prices in Canada have surged beyond the million-dollar mark. For instance, the average home price in Vancouver has reached $1,188,000, while in Toronto, it stands at $1,164,400.

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These developments collectively paint a picture of financial stress in the Canadian housing market, with a growing number of borrowers facing difficulties in meeting their mortgage obligations while grappling with soaring property prices.

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