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My BIL had a Mr Sub for a while and made money by working double shifts. He inventoried the buns so he knew if staff was giving freebies to friends. That doesn't mean the friends couldn't get upgrades.
Friends bought a house about three years ago. Rate <1%. They are variable with fixed payments. They went negative amortization a while ago. Loan is now larger than when they bought. House is up seven figures. Are they winning or losing? It depends on your perspective. Net worth game, big win. Cashflow game, win for now, probably a kick in the nuts at renewal (probably have to extend amortization).
www.thestar.com
Those are sensational headlines and not based in reality. The 60-90 year long canadian mortgages assume interest rate remains the same and payments never increase. The only reason for interest rates to remain this high would be raging inflation which would increase most peoples income which would allow them to make larger payments. Even the 35 year mortgages that many people are pulling now are only slightly real. Many of those people are doing that to solve a short-term cashflow issue. As income rises, interest rates drop and mortgage balance comes down, a large number of them will pay off far earlier (probably closer to the 25 year mark). Longer amortization gives you more flexibility to manage cashflow. Basically you pay rent in the form of interest and expenses for a few years and then go back to making meaningful principal payments on your mortgage.Japan had 100 year mortgages for a while
Lenders now seeing 60-, 70-, even 90-year mortgages as Canadians struggle with rocketing interest rates
Some banks mostly offer fixed-payment variable mortgages which allows homeowners to keep monthly payments the same, but leaves them vulnerable to paying little off the principal, experts say.
These aren't actual amortizations though. I'm on variable right now, and I saw the amortization jump to 40+ years one day out of curiosity.Japan had 100 year mortgages for a while
Lenders now seeing 60-, 70-, even 90-year mortgages as Canadians struggle with rocketing interest rates
Some banks mostly offer fixed-payment variable mortgages which allows homeowners to keep monthly payments the same, but leaves them vulnerable to paying little off the principal, experts say.
That is far from the worst part of variable with fixed payment. Letter of the law is upon renewal you need to return to the original schedule. Say you owe 500K over 25 years initially. Payments are ~$2500. Assume you paid off nothing during the first five year term (like my friends, paid down some, went negative and ended up back at the starting point). When you go to renew, officially, they are supposed to make you pay off the 500K in 20 years and the rate is now much higher. Shorter effective term adds ~$400 a month for next 20 years. Higher interest rate adds ???? as it depends on old and new rates but ~$1000 a month won't be out of line for many. This should be come down over time. At renewal though, they are looking at 2500 becoming 3900 a month and probably never dropping below $3000/mo again. Ouch.
that the current mortgage rates are not historically out of the norm.
The upside to inflation is your mortgage balance is effectively deflated.A reminder to the young whippersnappers
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Our crazy high prices were driven by the unhealthy low mortgage rates between 2009 and 2021/2022 and of course supply problems.
If the rates stay where they are or go up some more (which is still historically low) for the foreseeable future prices will eventually adjust more as monthly payments become completely unmanageable at renewal for many owners. Distressed sales etc. Not everyone's mortgage renewal is on the same day. Bubble burst, likely not due to supply issues, adjustment yes.
Lots of people right now are using the long amortization periods or even just putting it all on a secured LOC (practically infinite mortgage) at renewal to hold on (hold out?) until the rates drop. Back to historical, they may not drop in the coming years even if inflation does....
That's why I'm glad I have my variable with both rates, and payments...at least I'm used to it, and still keeping to my amortization schedule (and slightly ahead of it). 3 more years of this, so maybe things will stabilize...or maybe we'll keep cranking.
There is a lot to evaluate and situations will be different. About the only scenario I can think of is you own a core GTA home, you got a 5 year fixed rate 1.5% mortgage in 2021. Anything else and you're somewhere between feeling pinched and being crushed from inflation.
Don't worry, housing is grossly underrepresented in that loop. The most comical part is they are rock solid on their 2% target but is is based on meaningless crap basketball that doesn't represent spending of the population. The closest consumer would be in a completely paid off house as property tax plus utilities is in the ballpark of what boc considers reasonable for mortgage/rent plus property tax plus utilities.
I somewhat agree that BOC has some blame in this, but I doubt they were a major cause of inflation or escalating house costs.
apple.news
Who's getting these jobs and why isn't it my children?Welp! Here come more hikes!
Canada Job Gains Triple Expectations, Wages Grew Faster — Bloomberg
Canada’s labor market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.
I can't imagine there will be more immediate hikes. I sense the economy is cooling off faster than we think. Prices are falling on toys, I see more people looking for work lately, fuel if getting cheaper as stockpiles are growing.Welp! Here come more hikes!
Canada Job Gains Triple Expectations, Wages Grew Faster — Bloomberg
Canada’s labor market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.
I didn’t go into the details or am smart enough to know…but a potential line of questions is…are these full time or part time? Do they pay enough to survive? Are those by people looking for second or third job?
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