2y ago

A 47-year mortgage? They're out there — and even longer ones could be coming

www.cbc.ca /news/business/mortgage-negative-amortization-1.6986214

About one out of every five home loans at three big Canadian banks are now negatively amortizing, which happens when years get added to the payment term of the original loan because the monthly payments are no longer enough to cover anything but the interest.

22 comments

Can you imagine the total cost for home ownership in a 47 year mortgage?
30 year mortgages around 3% were something like 175% of the loan price. Even that seems crazy
This is insanity
- They are basically making it a generational purchase. Like your parents buy a home and then on their death bed, pay it off and hand you the key.
  Can’t wait till it’s like 200 years 🙃
- I wrote up a long reply that failed to post, but the TL;DR is that's not really the right way to look at it.
  The cost of home ownership is the interest part of payments less home ownership costs plus home value appreciation vs. rental cost, then factor in the intangible personal value of home ownership vs. renting.
  70% of a home's value in interest could be a bargain compared to rent over 30 years.
  Edit: I just did some napkin math on my situation, and we'd need to have housing and land prices drop by 20% over the next 30 years and a major maintenance item every 1-2 years for us to lose out vs. renting. There's no way that's possible on that long a timeframe. Even if there's a catastrophic 75% market downturn, it will easily recover over 30 years at below-historical-average gains.
  
  My mortgage payment plus property taxes is less than the going rental rate for an equivalent 3br suite, and I bought last year.
  The thing that convinced me is that my mortgage payment stays the same every year while everything else goes up with inflation, including my salary.
  We'll see where we're at when it's time to renew in 4 years but the way things are going even if it costs me an extra $1000/month I'm still probably coming out ahead.
  
  Can you try to repost the comment again. Would like to know the details. Was told renting is better than ownership, based on interest payments + taxes + maintenance vs renting and house appreciation vs investing.
- In addition to comparing against cost of rentals, there's also opportunity cost with investing. If someone has a mortgage averaging 3-6%, and invests at 5-10%.. that's a great strategy. Why wouldn't you push the amortization as long as possible?
Sub prime loan crisis Canadian edition incoming
> variable rate loans with fixed payments that lead to negative amortizations shouldn’t be allowed at all
I agree with that, it does not make sense really
- You have to be mindful of ending up underwater, but otherwise it's not much different than renting – without all of the baggage of renting that sees people want to own.
  
  Unless monthly payments on renting from the bank are lower than renting from someone else it’s a worse deal. If you rent you don’t need to worry about things like replacing roof, windows, etc.
  Also, if you rent you’re more free to pick up and leave vs. being tied to a mortgage.
Wow, anything except building public housing and cracking down on corporate ownership of SFHs.
This is the best summary I could come up with:
Canada's top banking regulator will soon implement new guidelines for the mortgage market, aimed at reducing the risks posed by negative amortization mortgages — home loans where the payment terms have ballooned by years and sometimes decades because payments are no longer enough to pay down the loan on the original terms.
This month, the Office of the Superintendent of Financial Institutions will unveil new capital adequacy guidelines for banks and mortgage insurers.
On a standard 25-year home loan, under normal circumstances, a certain percentage of the mortgage payment goes to the bank in the form of interest, while another chunk is allocated toward paying down the principal.
As things stand now, "only $23 goes to pay the capital of of my mortgage and the rest is all in interest," he told CBC News in an interview.
Exact numbers are hard to come by, but regulatory filings from Canada's biggest banks show negative amortized loans make up a large and growing pile of debt.
Betu is among those who thinks variable rate loans with fixed payments that lead to negative amortizations shouldn't be allowed at all, and he hopes the new rules will crack down on them.
The original article contains 945 words, the summary contains 191 words. Saved 80%. I'm a bot and I'm open source!
ARMs should be illegal
- Disagree. I'm on an ARM. VRM are stupid and if prime raises or lowers so should your rate. Principal payment should never change IMHO. Having all these VRM mortgages have caused this mess.
  My variable rate has gone up so much my monthly payments have gone up 1k. But my amortization is still 25 years.
  https://www.truenorthmortgage.ca/blog/adjustable-rate-mortgage-canada
  
  An arm is an adjustable rate mortgage.
  You want fixed.
  You're in Canada I think we are talking past each other

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