Why the variable rate, fixed-payment mortgage is a ticking time-bomb

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Under these types of loans: The homeowner pays the same amount each month whether interest rates rise or fall. But the amount of that payment that goes towards paying interest and the amount that goes towards paying down the mortgage principal changes with interest rates.

As of November 2022, variable rate, fixed payment mortgages represented three quarters of all variable-rate mortgages, which in turn represent about one-third of all outstanding mortgage debt, according to the Bank of Canada.

This week on Down to Business, Jimmy Jean, chief economist at Desjardins Group, talks about the risks that these types of loans create, for both homeowners and for banks and other lenders; but Jean also talked about the risks to Canada’s economy, particularly for younger people, as housing prices continue to increase.

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