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.
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 🙃
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
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
