Description: Negative amortization is pushing some Canadian homeowners to longer and longer mortgages. When rising interest rates eat up more and more of a fixed payment from a client, the life of the mortgage gets extended to allow more time to pay off the principal. Homeowner Michael Girard-Courty now finds that only $27 of his $ 1,156 monthly payment on his variable rate mortgage is going to the principal, driving up the term of the mortgage to 47 years versus the original 25. Mortgage broker Patrick Betu would like to see the government outlaw the prospect of negative amortization.
Date: October 5, 2023
Source: cbc.ca
Link: https://www.cbc.ca/news/business/mortgage-negative-amortization-1.6986214
Discussion points:
1) Had you been aware that there was such a thing as negative amortization?
2) As you look forward to moving into the workforce after your time as a student, would you consider taking on a 47-year mortgage to get into your first home?
3) Page 10-17 of Wiley’s Financial Accounting: Tools for Business Decision-Making has an inset box at the bottom of the page titled “Personal Mortgages.” What was the average mortgage on a home in Canada at the end of 2021? Do a quick search to see if you can find what that amount might be right now.
Xander Ries
1) Had you been aware that there was such a thing as negative amortization?
Yes, we were aware of negative amortization, we remember seeing it as soon as interest rates shot up.
2) As you look forward to moving into the workforce after your time as a student, would you consider taking on a 47-year mortgage to get into your first home?
Yes, we would consider it to attain our first home but if at all feasible we would double up on the monthly payment to pay down the principle as soon as possible.
3) Page 10-17 of Wiley’s Financial Accounting: Tools for Business Decision-Making has an inset box at the bottom of the page titled “Personal Moortgages.” What was the average mortgage on a home in Canada at the end of 2021? Do a quick search to see if you can find what that amount might be right now.
In Canada the average mortgage on a home at the end 2021 was over $228,000.
Whereas, the average mortgage on a home in September of 2023 was over $349,178 according to MoneySense.ca.
Xander Ries
Evan Wood
Amin Ahmed
Natasha Imbeault
Zanna Hathaway, Dylan Kurtz, In Hye Yang, Andrianna Scott
1) No we were not aware there was such thing as negative amortization. We did hear about the increase in housing prices and interest rates though.
2) None of us would consider taking out 47-year mortgage especially on our first houses. Although the payments would be smaller the house would only be paid off when we are close to 70.
3) The average Canadian house mortgage in 2021 was 228,000. The average in 2023 is around 349,000. That is 1.5 times greater than 2021.
Connor Briand, Josh Gonsalves, Leah May, Aidan Hazen
1. No we were not aware that there was such a thing as negative amortization. We were aware of the increasing house prices and interest rates.
2. None of our group members would consider taking a 47-year mortgage to purchase our first house. We all agreed that we did not want to be tied to such a long mortgage unless there was a quicker way to pay it off, such as paying more each month.
3. By the end of 2021, the average Canadian home cost over $288,000. Whereas, in August 2023 the average increased by approximately $35,000. Statistics show that British Columbia has the highest average loan value of $496,262 and New Brunswick has the lowest mortgage loan size at a value of $189,156.
Brenden Donald, Morgan Milley, Calum Macdonald, Ethan Cushing
1) Had you been aware that there was such a thing as negative amortization?
We were not aware that negative amortization was a thing. However, we were aware of increasing prices in the housing market and how it’s becoming practically impossible for a lot of families to afford homes.
2) As you look forward to moving into the workforce after your time as a student, would you consider taking on a 47-year mortgage to get into your first home?
If it was our only option we all would consider it but if there was a way around it we would definitely take the other route. A 47 year old mortgage is something that we would be paying off for the better part of the rest of our lives and isn’t something we would want to do.
3) Page 10-17 of Wiley’s Financial Accounting: Tools for Business Decision-Making has an inset box at the bottom of the page titled “Personal Mortgages.” What was the average mortgage on a home in Canada at the end of 2021? Do a quick search to see if you can find what that amount might be right now.
The average mortgage on a home in Canada at the end of 2021 was over $228,000. Now, in 2023 it is approximately $349,000 which is about 1.53 times larger than just 2 years ago.
Spencer Desveaux, Abdul Haruna, Daniel Spears, Broderick Richardson
1) Had you been aware that there was such a thing as negative amortization?
No we were not aware of what negative amortization was. However most people in our group were aware of the increase in housing prices along with the hikes in interest rates.
2) As you look forward to moving into the workforce after your time as a student, would you consider taking on a 47-year mortgage to get into your first home?
We all were against the idea as the thought of having to make payments on your home for the next 47 years and never actually owning it is quite defeating. We are all hoping by the time we enter the workforce the economy will have cooled down and rates will have dropped to a reasonable percentage.
3) Page 10-17 of Wiley’s Financial Accounting: Tools for Business Decision-Making has an inset box at the bottom of the page titled “Personal Mortgages.” What was the average mortgage on a home in Canada at the end of 2021? Do a quick search to see if you can find what that amount might be right now.
At the end of 2021 the average mortgage on a home In Canada was over $228 000. Compared to now in 2023 the average is just over $349 000.