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Rising interest rates leading to reports of 70-year mortgages

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A new mortgage phenomenon is popping up across the country and in Windsor-Essex that sees homeowners facing extended mortgage terms of 50, 60 or even 70 years.

Rasha Ingratta, a mortgage advisor with Mortgage Intelligence in Windsor, says about 10 per cent of the calls she is receiving are tied to this issue.

“With the calls that I’m getting, I just want people to not panic,” Ingratta told CTV News. “The best option is to either increase your payment if you can [or] refinance if you can.”

The issue is tied to variable rate mortgages with fixed payments. Rising interest rates have thrown the balance off between paying down principal and interest on a mortgage term so much so that upon renewal, the amortization schedules have been extended decades to compensate.

The Office of the Superintendent of Financial Institutions (OSFI) has received similar reports of negative amortization, but is downplaying their significance. The OSFI is an independent federal agency regulating and supervising 400 federally regulated financial institutions like banks and credit unions.

OSFI declined an interview request from CTV News and instead pointed to a recent statement on the matter. The statement outlines the reports “are not entirely accurate” but, regardless, has proposed changes to mitigate the mortgage risk.

“These kinds of projected amortizations are not realistic and do not represent what borrower’s actual repayment period will be,” reads part of the statement. “In most circumstances lenders will restore borrowers to their contractual amortization period.”

The OSFI statement also characterizes these renewal term extensions as “hypothetical” and goes on to say in some cases “an infinite amortization period” could be produced by the repayment calculation.

NEW TERRITORY

Ingratta has been working in the mortgage lending industry since 1999 and said this a new problem arising from rising interest rates, spurred by the Bank of Canada’s attempt to get inflation inline with its two per cent mandate.

“We haven’t really seen this before,” said Ingratta.

While the issue is popping up in Windsor, many of the calls Ingratta receives are from outside of the region.

The dour financial picture is leading many of her clients to pursue alternate housing arrangements, including multi-family homes.

“I’ve seen situations where people have moved in together,” said Ingratta. “We are going to see that.”

SOLUTIONS

OSFI has laid out key actions borrowers can take to manage debt loads, particularly those with variable rate mortgages with fixed payments during periods of high or rising interest rates.

OSFI advises the following actions:

  •  increasing mortgage payments
  •  making lump sum payments
  •  renegotiating their mortgages

OSFI has also recommended changes to lending and capital ratio targets meant to “lessen the number of mortgages” that would run into negative amortization.

“We have proposed capital requirements to ensure banks and mortgage insurers have adequate capital buffers to absorb risks that arise when mortgages fall into negative amortization,” said Peter Routledge, superintendent of financial institutions, in a statement. “We believe these incremental changes add necessary resilience to Canada’s mortgage finance system.”

OSFI has stressed, because of the changes, consumers with a current mortgage term should not expect an increase in monthly payments.

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Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

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Yuri Kageyama is on X:

The Canadian Press. All rights reserved.

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Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

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Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

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RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

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TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.

The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.

The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.

RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.

The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.

RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:REI.UN)

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