More than one-third of first-time home buyers say they would take a longer amortization period on their mortgage if they could, according to a Google Survey that was done for The Globe and Mail.
Long amortizations are controversial. There was a period around 2006 when Canadians were able to obtain 40-year mortgages that were covered by government-backed mortgage insurance. Former Finance Minister Jim Flaherty capped the length of insured mortgages at 25 years, a change that took effect in mid-2012. The longer the amortization, the greater the amount of interest that the consumer is on the hook for. But consumers sometimes prefer lengthier mortgages because their monthly payments are smaller.
Mr. Flaherty’s changes only applied to borrowers who have down payments of less than 20 per cent, because those are the borrowers for whom mortgage insurance is mandatory. Banks are still offering 30-year amortizations to borrowers who have a down payment of at least 20 per cent. Canada’s banking regulator spent considerable effort last year gathering detailed information from banks as it contemplated barring them from offering 30-year uninsured mortgages. So far it has decided not to act.
The No. 1 reason cited by the first-time buyers who wished they had a longer amortization was to save for retirement, according to the survey.
It found that 35.9 per cent of first-time buyers have a 25-year amortization, and that 19.3 per cent have a 30-year amortization. Perhaps not surprisingly, younger respondents tended to have longer amortizations.
The majority of first-time buyers said they would not take a longer amortization because they want to be mortgage-free quickly.
Original Article: www.Theglobeandmail.com/housing