Banks must explain the risks of non-traditional mortgages to homebuyers to prevent potential payment shock, U.S. federal regulators ordered on Friday.

Regulators said that many consumers don't understand the repayment risks and potential rising interest rates attached with new mortgage plans. The banks must now ensure prudent lending practices and consider a borrower's repayment capability.

The new guidance was issued jointly by the U.S. Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.

"The marketing and use of non-traditional mortgage products — particularly interest-only and payment-option adjustable-rate mortgages — have expanded rapidly to a wider spectrum of borrowers who may not otherwise qualify for more traditional mortgages of similar size," John C. Dugan, the comptroller of the currency, said in a statement.

Interest-only mortgages, which became available in Canada this year in June, initially require the homeowner to pay only the interest on the loan for a set amount of time. The Canadian Mortgage and Housing Corporation notes that this type of mortgage tends to appeal to borrowers seeking cash flow flexibility in the first few years of a mortgage.

U.S. regulators warn that these types of loans make borrowers particularly vulnerable to rising and falling housing prices and interest rates.

CMHC guidelines outline that interest-only mortgages are only available to borrowers with a proven track record in managing their debt and who can show that they will be able to repay the mortgage principal after the interest-only period.

With files from the Associated Press