The Globe and Mail reports in its Monday edition that at least two big banks allow borrowers to shift a portion of their interest costs onto the principal owed on their mortgages, helping them cope with the impact of soaring interest rates. The Globe's Erica Alini and Rachelle Younglai write that variable-rate mortgage products from TD and CIBC are not new but they are being put to the test in this rising rate environment. With interest rates up 3.5 percentage points so far this year, borrowers are at risk of falling behind on their interest payments and increasing the amount of their original loan. Variable-rate mortgages have constant monthly payments and the interest rate on the mortgage is connected to the Bank of Canada's overnight lending rate. TD and CIBC allow the size of the original loan amount -- the mortgage principal -- to grow in some circumstances. With every rate hike, the cost of borrowing increases and more of the borrower's monthly mortgage payment is used to cover the interest expenses. When interest rates rise as sharply as they have this year, some borrowers will find themselves in a situation where very little of their monthly mortgage payment is used toward paying down the principal.
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