TD Bank said “positive payment actions” taken by its mortgage clients have reduced the number of mortgages that currently have a negative amortization.
In its fourth-quarter earnings report, the bank revealed that about 14% of its fixed-payment variable rate mortgage portfolio is currently in negative amortization, meaning the monthly payments of those clients aren’t enough to cover the total interest cost, which is being added to the principal balance. That’s down from roughly 18% in the previous quarter.
“We are seeing positive payment actions by clients that are reaching trigger rates and we reach out to those clients well in advance of them reaching trigger rate,” said Chief Risk Officer Ajai Bambawale. “And they’re responding positively by either making lump sum payments or moving to a fixed rate or increasing the [principal and interest].”
As a result of that outreach and action being taken by borrowers who temporarily saw their amortization periods grow, those amortizations are slowly coming back down. It’s a trend that’s also been seen at BMO and CIBC, which also offer fixed-payment variable-rate mortgages and allow them to negatively amortize.
When these mortgages come up for renewal, the amortization period also resets back to its contracted period, typically resulting in higher monthly payments.
As of Q4, about 19% of TD’s mortgage portfolio had an amortization period of over 35 years, down from a high of 27.4% reached in the first quarter.
| Q4 2022 | Q3 2023 | Q4 2023 | |
| 15-20 years | 13.5% | 13.7% | 14.1% |
| 20-25 years | 29.5% | 29.3% | 31.5% |
| 25-30 years | 19.2% | 22.3% | 24.6% |
| 30-35 years | 3.7% | 2.9% | 1.4% |
| 35 years and more | 25.2% | 22.8% | 19.2% |
| Q4 2022 | Q3 2023 | Q4 2023 | |
| Residential mortgage portfolio | $244.9B | $256.4B | $261.3B |
| HELOC portfolio | $113.7B | $117B | $117.6B |
| Percentage of mortgage portfolio uninsured | 80% | 82% | 83% |
| Avg. loan-to-value (LTV) of uninsured book | 49% | 52% | 50% |
| Portfolio mix: percentage with variable rates | 45% | 39% | 37% |
| Mortgages renewing in the next 12 months | ~10% | ~9% | ~13% |
| Canadian banking gross impaired loans | 0.11% | 0.13% | 0.14% |
| Canadian banking net interest margin (NIM) | 2.70% | 2.74% | 2.78% |
| Provisions for credit losses | $617M | $766M | $878M |
Source: TD Conference Call
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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