Canadian homeowners, primarily in British Columbia and Ontario, have extended their amortization periods to more than 90 years due to rising interest rates…but that’s not all.
• Also Read: His mortgage payments range from $2850 to $6200 per month
Mortgage experts interviewed by Newsweek Daily noted that some owners who entered into variable-rate contracts with fixed monthly payments have seen the changes.
To pay the same amount every month, banks have to extend the amortization period for several years, sometimes up to 90 years.
With the key rate hike, financial institutions are forced to adjust their prime rate.
The latter increased from 2.45% to 6.95% between March 2022 and June 2023.
The ramifications on these borrowers’ portfolios could be major, experts warn.
For example, a borrower taking out a 25-year mortgage of $500,000 at a rate of 5.80% would pay about $448,000 in interest.
If the mortgage were extended over 90 years, that would come to about $2,124,000.
“Interest rates have risen so much that the only way to keep the monthly payment unchanged is to extend the amortization period,” says NerdWallet housing expert Holden Lewis.
If a landlord wants to sell his home, he may be in the unfortunate position of not accumulating enough equity.
David Stevens, former CEO of the Mortgage Bankers Association, warns borrowers about the risks of fixed monthly payments, but also for risk managers.
The expert explains the situation in which the owner can find himself after 10 years of repayment.
“Because the average homeowner owns 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 associated with the sale,” he says.
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