2023-08-12 18:56:11
Canadian homeowners, primarily in British Columbia and Ontario, are seeing their amortization period extended over 90 years due to rising interest rates…but that’s not all.
• Read also: His mortgage payments go from $2850 to $6200 per month
Mortgage experts interviewed by the daily Newsweek claim to have seen these changes for some owners who have contracted a variable rate with fixed monthly payments.
In order to pay the same amount every month, banks have to extend the amortization period by several years, sometimes up to 90 years.
With the increase in the key rate, financial institutions were forced to adjust their prime rate.
The latter rose from 2.45% to 6.95% between March 2022 and June 2023.
AFP
The consequences on the portfolio of these borrowers are major, warn experts.
For example, a borrower who takes out a 25-year mortgage of $500,000 with a rate of 5.80% would pay approximately $448,000 in interest.
A figure that would climb to some $2,124,000 if the mortgage is extended over 90 years.
“Interest rates have gone up so much that the only way to keep the monthly payment unchanged is to extend the loan amortization period,” says Holden Lewis, housing expert at NerdWallet.
If a landlord wishes to sell his home, he might find himself in an unfortunate position, while he would not have accumulated sufficient equity.
David Stevens, former CEO of the Mortgage Bankers Association, warns borrowers of the risks posed by fixed monthly payments, but also for risk managers.
The expert explains in what situation an owner might find himself following 10 years of repayment.
“Since the average homeowner has owned their home for less than 10 years, the inability to develop capital can trap them in their residence if they want to sell it, but don’t have enough money to pay all the costs of the sale,” he says.
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