No more 30 Year Amortizations in Canada

[blankall]

Originally Posted by TheGrimm

I don't get why anyone would want to do a 30/35/40 year mortgage in the first place. If you need to stretch yourself THAT much to get approval or feel comfortable with your monthly payments you should simply be buying a lower cost home or condo etc.

I really don't think this will impact the market a ton, if anything it will hurt the mini mansion buyers with mid-income levels. All these $750-900's 3000 sq foot homes on the edge of the city will be a harder sell. They will be the first to get hit if there is a "correction" anyway.

Longer amortizations make sense if you are renting the place out. The interest portion is a write off, while the capital portion is not. It makes sense to stretch the mortgage out as long as possible. There's also nothing stoping you from paying extra money towards the capital and de facto turning it into a shorter amortization. You basically have more flexibility.

This move should delay the increase in interest rates.

[ranchlandsselling]

Originally Posted by Art Vandelay

I have a 35yr. I have 1.5 yrs left on my current term. Through some prepayments I have my amortization down to 30 yrs as of now. I did not need CMHC insurance when I signed up for the mortgage as my down payment was like 30%.

When it comes to refinancing, will I need to go with a 25yr amortization or do banks still offer more than 25yrs on non-insured mortgages?

Nope, you'll be fine with whatever you had, it's only on new mortgages.

Originally Posted by TheGrimm

This is not a smart game plan most of the time. It's great that you got your raises and that you are comfortable, but what would happen if you weren't living in Alberta and your pay went the other way or you got layed off? I am just playing devils advocate, but why put yourself through the extra stress of it all when you could have simply bought the "dream" house down the road and had a larger downpayment having saved all that extra money?

"Most of the time"? The default rate and foreclosure rate across Canada would certainly disagree with that.

A hundred bucks isn't likely going to make the difference if someone gets laid off. They're either going to be screwed or they're not. If I got laid off I'd have been screwed short term but might have found work. If not I'd likely have moved out with someone and rented the place out and waited. If in the end I need to bail a 35, 30 or 25 year amortization at the time wouldn't have made a difference. If I had to amortize over 25 years I likely would have had the same amount of payment because I'd be at the lower amortization but in smaller house.

I'm not saying the change is a necessarily a bad one, I just disagree with the applauding that it needed to be done to save Canadians. If anything, it might hurt anyone that's bought since 2006 or anyone who owns a house if it moves prices down.

I just got an automatic increase on one of my smaller credit cards. As well as new cheques for a low 1.9% interest rate until January 2013. That brings my total available credit card debt up to $19,400 with $600 currently used.

If the government wants to stop Canadians from hurting themselves focus on an area that they do. Focus on limiting what the stupid people have access to quickly at outrageous interest rates.

[mrkajz44]

Originally Posted by blankall

Longer amortizations make sense if you are renting the place out. The interest portion is a write off, while the capital portion is not. It makes sense to stretch the mortgage out as long as possible. There's also nothing stoping you from paying extra money towards the capital and de facto turning it into a shorter amortization. You basically have more flexibility.

This move should delay the increase in interest rates.

Just becuase the interest is tax deductible does not mean it makes more sense to pay more of it over the life of the mortgage. You will still pay more interest, even though the tax effect reduces the impact.

[DownhillGoat]

Originally Posted by ah123

Flexibility. You can choose a 30 year amortization and increase your payment and payment frequency. If you run into any sort of financial trouble in the future, you can change your payment amount to the minimum amount required (which would be lower on a 30 year am vs a 25 year am).

This one right here. When I purchased my house I bought a decent sized starter home but didn't over-extend myself. Being a first home, I wasn't sure how impacted I was going to be with the mortgage, so I opted for the 35 year amortization. After seeing what that was like for the first 6 months/year I increased the payments and cut the original 35 years down to 17.

Now if things hit the fan with the economy, my industry/career, interest rates, or I get remarried and end up having 8 kids, I can still fall back on that 35 year amortization after hammering down principle in the 'good years', without stressing about making the mortgage payments, and would stretch my rainy day fund out a little bit longer.

Although I'm going to have to assume a lot of people opting for the 35 year mortgage was just to afford a bigger house.

[Red]

Originally Posted by ranchlandsselling

"Most of the time"? The default rate and foreclosure rate across Canada would certainly disagree with that.

A hundred bucks isn't likely going to make the difference if someone gets laid off. They're either going to be screwed or they're not. If I got laid off I'd have been screwed short term but might have found work. If not I'd likely have moved out with someone and rented the place out and waited. If in the end I need to bail a 35, 30 or 25 year amortization at the time wouldn't have made a difference. If I had to amortize over 25 years I likely would have had the same amount of payment because I'd be at the lower amortization but in smaller house.

I'm not saying the change is a necessarily a bad one, I just disagree with the applauding that it needed to be done to save Canadians. If anything, it might hurt anyone that's bought since 2006 or anyone who owns a house if it moves prices down.

I just got an automatic increase on one of my smaller credit cards. As well as new cheques for a low 1.9% interest rate until January 2013. That brings my total available credit card debt up to $19,400 with $600 currently used.

If the government wants to stop Canadians from hurting themselves focus on an area that they do. Focus on limiting what the stupid people have access to quickly at outrageous interest rates.

It's not just about the $100/month. People should not base their lives on monthly payments. The principal owing is what really counts.

If we didn't have changes to extend to 30-35 and 40 amortizations we wouldn't be paying 500K for 275K houses. We could then afford bigger downpayments and with people less stressed financially we would have more spending at the malls etc. The economy overall would be healthier.

[1stLand]

As a person involved in Real Estate sales, I have witnessed alot of people's irresponsible behavior up close. By that I mean viewing people's title history and seeing them taking out second mortgages (refinancing) properties based on a pie in the sky valuation they either got from an appraiser, a Realtor, or themselves.

Then when it comes time to sell and they owe more money on the home then it is worth, they put the blame on others.

I would have liked to have seen the Maximum Refinance rate moved to a value much lower than 80%.

[fundmark19]

Originally Posted by kunkstyle

This one right here. When I purchased my house I bought a decent sized starter home but didn't over-extend myself. Being a first home, I wasn't sure how impacted I was going to be with the mortgage, so I opted for the 35 year amortization. After seeing what that was like for the first 6 months/year I increased the payments and cut the original 35 years down to 17.

Now if things hit the fan with the economy, my industry/career, interest rates, or I get remarried and end up having 8 kids, I can still fall back on that 35 year amortization after hammering down principle in the 'good years', without stressing about making the mortgage payments, and would stretch my rainy day fund out a little bit longer.

Although I'm going to have to assume a lot of people opting for the 35 year mortgage was just to afford a bigger house.

This is exactly how I look at it as well. I took longest term available to me then immediately jacked up my payments by the maximum amount allowed. This gives me flexibility if interest rates rise I don't need to increase my payments as I am all ready use to paying that amount. And if something happens and I need to pay less I can reduce my payments accordingly

[TheGrimm]

Originally Posted by 1stLand

As a person involved in Real Estate sales, I have witnessed alot of people's irresponsible behavior up close. By that I mean viewing people's title history and seeing them taking out second mortgages (refinancing) properties based on a pie in the sky valuation they either got from an appraiser, a Realtor, or themselves.

Then when it comes time to sell and they owe more money on the home then it is worth, they put the blame on others.

I would have liked to have seen the Maximum Refinance rate moved to a value much lower than 80%.

I do wonder though, if it's more an issue with the people than the system... I am sure that these same people would rush out and grab a high interest credit card and make purchases they can't afford as well. I probably came off as using the same brush to paint all people earlier which isn't right.

There are plenty of smart people here that use these systems as tools to accomplish a lot, and it is possible removing these options does remove flexibility for those who were using the 35+ year mortgages as a method of providing a safety net. My concerns are for those who use them simply as a method of acquiring more than they can afford.

[blankall]

Originally Posted by mrkajz44

Just becuase the interest is tax deductible does not mean it makes more sense to pay more of it over the life of the mortgage. You will still pay more interest, even though the tax effect reduces the impact.

If you don't want to pay more interest then just put more money towards the capital. If you're not the kind of person who can budget that yourself, and you need the forced payment scheme of a lower mortgage, then you shouldn't be buying an investment property to begin with.

You've got to remember that for every dollar you spen on interest, since it is a tax right off, only becomes the equivalent of 60 cents or so. Also, it's better to have lower forced payments in the event you are unable to collect rent.

[WCan_Kid]

Originally Posted by Red

It's not just about the $100/month. People should not base their lives on monthly payments. The principal owing is what really counts.

If we didn't have changes to extend to 30-35 and 40 amortizations we wouldn't be paying 500K for 275K houses. We could then afford bigger downpayments and with people less stressed financially we would have more spending at the malls etc. The economy overall would be healthier.

I totally agree with you, but isn't this just basically like asking for a do-over on the last 25-30 years of economic experimentation?

I keep struggling with the desire to see a correction and feeling some sympathy for people who ended up buying during this time period at the inflated prices that easy credit led to. Sure, there are some that used it as an opportunity to go bigger than they should have, but the whole market was affected so even if someone tried to stay within their means they paid more than they should have.

As I see it, this whole credit/financing mess has been slowly building for decades and now we want to try to correct it almost overnight. So much of the "wealth" that allows people to spend so much at the mall is directly tied to those easy financing terms and low interest rates, when was the last time you had someone talk about their new car in terms of $x total vs $y/month and how much of that is related to artificial equity in their homes. A forced correction in the housing market has to have an impact on all aspects of our economy due to the type of world we've created, doesn't it?

I'm a pretty simple dude, though, so I'm likely missing something.

[Bill Bumface]

Originally Posted by core_upt

AFAIK, once you have a mortgage in place, so long as the mortgage amount doesn't change, he amortization period won't change when you renew your terms. You may have to requalify, but if you had a 30+ before, you are able to keep it moving forward.

Correct me if I'm wrong.

Originally Posted by TheGrimm

I don't get why anyone would want to do a 30/35/40 year mortgage in the first place. If you need to stretch yourself THAT much to get approval or feel comfortable with your monthly payments you should simply be buying a lower cost home or condo etc.

I really don't think this will impact the market a ton, if anything it will hurt the mini mansion buyers with mid-income levels. All these $750-900's 3000 sq foot homes on the edge of the city will be a harder sell. They will be the first to get hit if there is a "correction" anyway.

Originally Posted by rayne008

How is this f'in anyone with an existing mortgage?

- It won't change anything at your renewal
- I doubt it will seriously affect house prices
- If your worried about upgrading your house with a longer ammort,
you're probably buying too much house any ways, which is what they are
trying to prevent...

Its not if you took out a 30/35/40 year mortgage, its the fact you clearly paid more for your house because all the sudden everyone and their dog could qualify for a $400,000 mortgage.

With every increase in amortization prices saw a bump up, every time they pull back amortization prices see a retraction or stagnation, as now people can't afford as large of a mortgage.

Thus, if you bought in the period of 40 year mortgages, even if you did it on a 10 year amortization, you got %*$@ed. Government, aren't you going to at least take me for a nice dinner before you %*# me?

[blankall]

Originally Posted by WCan_Kid

I totally agree with you, but isn't this just basically like asking for a do-over on the last 25-30 years of economic experimentation?

I keep struggling with the desire to see a correction and feeling some sympathy for people who ended up buying during this time period at the inflated prices that easy credit led to. Sure, there are some that used it as an opportunity to go bigger than they should have, but the whole market was affected so even if someone tried to stay within their means they paid more than they should have.

As I see it, this whole credit/financing mess has been slowly building for decades and now we want to try to correct it almost overnight. So much of the "wealth" that allows people to spend so much at the mall is directly tied to those easy financing terms and low interest rates, when was the last time you had someone talk about their new car in terms of $x total vs $y/month and how much of that is related to artificial equity in their homes. A forced correction in the housing market has to have an impact on all aspects of our economy due to the type of world we've created, doesn't it?

I'm a pretty simple dude, though, so I'm likely missing something.

The correction your expecting won't be as big as your think. Housing prices in a growing city are expected to rise about 5%+ per year. This is considered sustainable growth. Unless the bottom drops out on the oil industry and people flee the city en masse, don't expect their to be a huge surplus of desirable housing in good areas in Calgary.

As it stands housing prices are falling gradually and have more or less remained level since the boom a few years ago.

Obviously noone has a crystal ball, but here's what I expect over the next 2-3 years:

10% drop in desirable areas, followed by a gradual creep up.
20% drop in less desirable areas (these are already down from the peak), followed by stabalization.

You won't see the 80s style 50%+ drops.

[Red]

Originally Posted by WCan_Kid

I totally agree with you, but isn't this just basically like asking for a do-over on the last 25-30 years of economic experimentation?

I keep struggling with the desire to see a correction and feeling some sympathy for people who ended up buying during this time period at the inflated prices that easy credit led to. Sure, there are some that used it as an opportunity to go bigger than they should have, but the whole market was affected so even if someone tried to stay within their means they paid more than they should have.

As I see it, this whole credit/financing mess has been slowly building for decades and now we want to try to correct it almost overnight. So much of the "wealth" that allows people to spend so much at the mall is directly tied to those easy financing terms and low interest rates, when was the last time you had someone talk about their new car in terms of $x total vs $y/month and how much of that is related to artificial equity in their homes. A forced correction in the housing market has to have an impact on all aspects of our economy due to the type of world we've created, doesn't it?

I'm a pretty simple dude, though, so I'm likely missing something.

I've been waiting to upgrade for 5 years now. Refused to do it under these crazy conditions and I could easily afford it. But it's just plain stupid to overpay like that. And no, houses in Calgary are not good value. They are a terrible value.

Cash sitting. Saving, saving and saving more. But not getting ahead of this RE mess.
The markets pay nothing. The banks pay nothing. Savers get hurt. Irresponsible people get cheap credit. Soound fair?

With these low interest payments I have been losing out on growth of my money. I shoudl be making 10% returns. Like we used to back in the "normal" days.


Does a flipper or a not so bright 22 year old that bought in 09 feel sorry for me or people like me?

I won't feel sorry for them.

[ranchlandsselling]

Originally Posted by Red

It's not just about the $100/month. People should not base their lives on monthly payments. The principal owing is what really counts.

If we didn't have changes to extend to 30-35 and 40 amortizations we wouldn't be paying 500K for 275K houses. We could then afford bigger downpayments and with people less stressed financially we would have more spending at the malls etc. The economy overall would be healthier.

I get what you're trying to say but it doesn't really make any sense.

Okay, let's say over the next 5 years the $500 k house drops to $275 k and you can only amortize 25 years if you put 5% down. If I was in the situation I'm in now I'd buy the most house I feel comfortable affoarding now and in the future. If the $500 k house is now $275 k I'm buing the $450 k house that used to be $700 k. I'm not instead spending the money in the mall on stuff?

Are you providing statistics that show the multiplier on a dollar spent in malls has a greater effect on GDP than a dollar spent in a house?

[Red]

Originally Posted by ranchlandsselling

I get what you're trying to say but it doesn't really make any sense.

Okay, let's say over the next 5 years the $500 k house drops to $275 k and you can only amortize 25 years if you put 5% down. If I was in the situation I'm in now I'd buy the most house I feel comfortable affoarding now and in the future. If the $500 k house is now $275 k I'm buing the $450 k house that used to be $700 k. I'm not instead spending the money in the mall on stuff?

Are you providing statistics that show the multiplier on a dollar spent in malls has a greater effect on GDP than a dollar spent in a house?

Makes perfect sense to me. You could afford a better house and it seems like you will always go for the most you can afford.

700K house - DP of 5% = 35K. Mortgage of 665K
450K house - DP of 5% = 22.5K Mortgage of 427.5

Even if the payments are the same due to interest rates, you always go for cheaper.

It's always about the principal, not monthly payments.

[ranchlandsselling]

Originally Posted by Red

Makes perfect sense to me. You could afford a better house and it seems like you will always go for the most you can afford.

700K house - DP of 5% = 35K. Mortgage of 665K
450K house - DP of 5% = 22.5K Mortgage of 427.5

Even if the payments are the same due to interest rates, you always go for cheaper.

It's always about the principal, not monthly payments.

What I'm saying is if someone wants to buy today's $500 K house, requiring a DP of $25 K - mortgage of $488 K.

What would they do if prices dropped to the levels you suggested?

They might buy a $450 k house, requiring a DP of $22.5 K - mortgage of $439 K

What's always about the principal? I have no idea what point you're trying to make? In my experience most people understand what amortization is and realize their house needs to be paid off. With that they try to buy the amount of house they can affoard based on the overall payment.

I've tried to explain to people the interest paid over the term vs. principal but most people lose interest (haha) after montly payment. That said I mostly chat to people in their 20's and 30's.

[Red]

Originally Posted by ranchlandsselling

What I'm saying is if someone wants to buy today's $500 K house, requiring a DP of $25 K - mortgage of $488 K.

What would they do if prices dropped to the levels you suggested?

They might buy a $450 k house, requiring a DP of $22.5 K - mortgage of $439 K

What's always about the principal? I have no idea what point you're trying to make? In my experience most people understand what amortization is and realize their house needs to be paid off. With that they try to buy the amount of house they can affoard based on the overall payment.

I've tried to explain to people the interest paid over the term vs. principal but most people lose interest (haha) after montly payment. That said I mostly chat to people in their 20's and 30's.

Then I am way to old for that

My point is that with the amortizations extenended it allowed people to borrow more. That resulted in higher demand and prices. Now housing is very expensive. Slash it in half and now people have more money for everything else. Now everything else is paid from HELOCs. (in a lot of cases).

Why principal is important? If you have 1K a month left over it is way quicker to pay off a 100K mortgage than 300K.

I'd take a higher interest rate over higher principal for the same payment. Because ever dollar that you have left over (saved) has so much more meaning.

[Sopure]

Originally Posted by ranchlandsselling

In my experience most people understand what amortization is and realize their house needs to be paid off. With that they try to buy the amount of house they can affoard based on the overall payment.

Pretty much how I operated when I just got my place. I knew what was comfortable, and I knew what I could handle if I really, really wanted to stretch. I went the comfortable route and plan on putting money to my loan every year.

[ranchlandsselling]

Originally Posted by Red

Then I am way to old for that

My point is that with the amortizations extenended it allowed people to borrow more. That resulted in higher demand and prices. Now housing is very expensive. Slash it in half and now people have more money for everything else. Now everything else is paid from HELOCs. (in a lot of cases).

Why principal is important? If you have 1K a month left over it is way quicker to pay off a 100K mortgage than 300K.

I'd take a higher interest rate over higher principal for the same payment. Because ever dollar that you have left over (saved) has so much more meaning.

I totally agree - but just don't see that reasoning in the first time or second time home buyer when they're buying. Maybe when they're older and looking at what's coming down the road in 30-15 years. So the forward thinking 30 year olds and those nearing retirement. As well the HELOC's are often used very poorly, I've seen 50ish year olds with almost fully maxed out mortgages, few savings and wanting to take out equity to buy a fancy car. It blows my mind.

But like I said earlier - I'd rather see the government or banks focus on the even more stupid lending.

[The Yen Man]

I still think houses right now are pretty much the correct market rate here in Calgary. IMO, people who are expecting some sort of market correction will be waiting for something that's not going to happen. People talk about our situation here like we're Vancouver, and that house prices are so high that they're unattainable, but that's simply not true.

My starter home is $400K. With 20% down on a 25 year mortgage, it works out to roughly $800 bi-weekly. A couple with decent jobs should be able to make that payment pretty comfortably IMO. That's roughly $20K in after tax income per year.

A regular AP position at most companies pay $40K a year. Its pretty easy for most people to earn $60K in this city. Lets say a couple earns $100K combined a year. After taxes, you should still have roughly $70K in earnings. How the heck can you not afford $20K of it on a house?