What happens if you only pay interest on your home?

As elevated interest rates hit the housing market, some people have been have been extending their amortization period out several decades and are only paying interest on their homes.

Some Canadians have extended the amortization period on their mortgages, and real estate experts say it could bring uncertainty for renewals.

Amortization refers to the time it takes to pay back a mortgage. As elevated interest rates hit the housing market, some people have been have been extending their amortization period out several decades and are only paying interest on their homes.

Daniel Vyner, the principal broker at DV Capital, said in an interview with BNNBloomberg.ca Monday, the trend points to potential default risks and problems for some buyers.

In his view, variable-rate mortgage holders with fixed payments are nearing, or have already hit their trigger rate, which refers to when a homeowner’s mortgage payment is not sufficient to cover the interest accumulated since their last payment. 

“These extended amortizations, this is really just a temporary Band-Aid solution, which in my view is preventing mortgage defaults,” he said. 

“In other words, if somebody was in an adjustable-rate mortgage where each time this prime rate continued to hike, and they weren't able to afford these mortgage payments, the mortgage would be in default.”

According to The Superintendent of Financial Institutions (OSFI), around 12 per of uninsured mortgage owners are only covering interest payments, or negatively amortizing.