(Bloomberg) -- Canada’s banking regulator moved to rein in a number of home-loan products that have exploded in popularity during the country’s pandemic housing boom as the market starts to turn.
Consumers who hold mortgages that are combined with a revolving home-equity line of credit and exceed a 65% loan-to-value ratio must use some of their principal payments to pay down their mortgage balance until it’s below that threshold, the Office of the Superintendent of Financial Institutions said in a statement Tuesday.
The rule change targets loans totaling C$204 billion ($158 billion), or about 11% of the total residential mortgages outstanding.
After becoming one of the world’s hottest housing markets in recent years, home values in Canada are undergoing a rapid correction as buyers adjust to higher borrowing costs. With Canadian households already some of the most indebted among advanced countries, policy makers are now on high alert for borrowers who could get into trouble as rates rise and prices fall.
“We have asked federally regulated financial institutions to make their innovative mortgage products safer and more sustainable over the long term,” Peter Routledge, head of the banking regulator, said in a statement.
As borrowers typically renew their loans before the end of their lenders’ fiscal year, most with a loan-to-value ratio above 65% in the targeted products will have until Oct. 31 or Dec. 31 of next year to get that debt under the new limit, the regulator said.
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