Is a 30-year mortgage a 'trap'? Experts warn that young people buying houses may have to pay nearly 150000 yuan in interest!
In August of this year, the federal government allowed first-time homebuyers to repay a 30-year mortgage in installments when purchasing a new home, and the new regulations will be expanded to all those who wish to purchase a new home in December.
Experts believe that although the monthly repayment amount is low, mortgage loans with longer amortization periods will significantly increase the interest paid by homebuyers.
Marc Nixon, Vice President of Commercial Mortgage Loans at TN Financial Group, said, 'Banks will make a big profit.'. The increase in repayment period is a trap that will keep you working after retirement.
Nixon said that many new homebuyers purchase their first home at the age of 40. This means. Their retirement age has basically been raised from 65 to 70 years old.
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Extending the amortization period for insured mortgage loans is one of several measures introduced by the federal government to make housing more affordable for Canadians. On September 16th, Federal Finance Minister Chrystia Freeland stated, "This is to make it easier for young Canadians and first-time homebuyers to own their first home
This additional 5 years can help some first-time homebuyers enter the market, but the cost will also increase.
Nixon calculated in detail how much additional interest would be expected if he changed his 25 year mortgage to a 30-year mortgage. Calculated at a 4.5% interest rate, the total interest paid on a CAD 950000 mortgage will be:
The 20-year term is approximately 492441 Canadian dollars
The 25 year term is approximately CAD 634123
The 30-year term is approximately 782864 Canadian dollars
The monthly mortgage repayment amount is:
The 20-year term is approximately 6010 Canadian dollars
The 25 year term is approximately $5280 CAD
The 30-year term is approximately CAD 4814
Nixon believed that a 30-year installment plan was good news for developers and banks, but ultimately homebuyers would pay the price of increased interest costs.
Using his previous example, people who switch from a 25 year term to a 30-year term will pay $466 less per month. However, this will require an additional 5 years to repay, and interest expenses will increase by CAD 148471.
Ron Butler, a mortgage broker at Butler Mortgages, believes that although a 30-year mortgage may not be a good choice, it is necessary.
Butler said, "Canadians are increasingly unable to afford a house, which is discouraging our young people. To give them a chance, you need to provide them with 30-year installment payments, which unfortunately means paying a lot of extra interest. Longer mortgage terms may help some Canadians enter the real estate market, but it is important to calculate in advance how much extra money is needed for an additional 5 years. For a 30-year mortgage loan, homebuyers can try making additional monthly payments or making early repayments as much as possible to reduce their loan balance.
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https://toronto.ctvnews.ca/here-s-why-a-mortgage-broker-thinks-a-30-year-amortization-is-a-trap-1.7086350