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Brokers and bankers square off on 30-year amortization

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guest | 09 Jan 2012, 11:00 PM Agree 0

“I would say that most clients opting for a 30-year are well able to qualify for a 25-year one,” said Peter Puzzo, a mortgage agent with Assured Mortgage in Woodbridge, Ont. “So the government removing that option would really only reduce their cash flow and force them to put money into a mortgage instead of investing in other areas. I’m not sure that would send a good message to consumers.”The analysis comes on the heels of a panel discussion of Big Five economists Thursday, with several suggesting the government is most likely to drop the maximum amortization to 25 years if, in fact, rising household debt spurs another round of mortgage rule changes.“If we see the housing market surprise on the upside and debt growth surprise on the upside, then the government will likely take action to further tighten mortgage insurance rules,” TD Bank economist Craig Alexander said. “Quite frankly, if you can’t afford a mortgage at 25 years versus 30, then you probably shouldn’t be buying a house in the first place.”Puzzo and many other industry veterans disagree, suggesting, 30-year amortizations are largely used to free up cash each month, money often better spent paying down higher-interest debt or channelled into high-yielding investments.“It’s not a question of whether they can afford a shorter amortization,” he told MortgageBrokerNews.ca.Still, the government may have little choice but to make some kind of move to further slow the growth consumer debt, the panel of economists said Thursday.Specifically, total household credit debt increased by 5.5 per cent between 1991 and 2000 and by another 9.3 per cent in the 2001-2010 period.But that’s in stark contrast to mortgage debt, according to a new CMHC report. The proportion of residential mortgage debt to household debt was fairly stable during the 2001 - 2010 period, fluctuating between 69.0 per cent and 67.7 per cent.
  • KL | 12 Jan 2012, 10:23 PM Agree 0
    So the dude at TD who's making these comments I will assume makes high 6 figure income - and he is telling Joe Public that if you can't do 25 year am - you shouldn't be buying ?? Hmmmm - does seem right does it? So lets see ... who has hired more road warriors - TD is at the top of that list (along with 3 of the other big 5), and if you check the consumer poll - which of the 5 had the worst csutomer service ratings, I'll let you all figure it out !!
    I agree with Pete - leave the 30's for those who need. The gov't and bankers already cut the poop outta the 35's and 40's . Leave it alone !
    Again - the governing bodies should spend their time monitoring the credit card companies along with the hopeless profit gauging CCS firms (not the city of regional ones who do a great job) the others who say they can do this or that but all they do is take $$ from the already distraught public .... Leave the mortgage stuff alone and let the qualified broker network take cre of biz !!!
  • n hamblin | 12 Jan 2012, 10:51 PM Agree 0
    Just the big five looking out for themselves , surely no one believes they have any ones interests but their own in mind.
    Just like the reduction in LTV only means they can lend money to their clients on more profitable unsecured instruments rather than low profit mortgage products.
  • Vans T. LeBlanc, MA, BBA | 13 Jan 2012, 12:46 AM Agree 0
    Restricting mortgages to the 25-yr amort. raises basic some questions. Is it on purchases only, refinancing, renewals or is it on all mortgages? For brevity of this discussion, let us examine purchases only. If the mortgages on all home purchases were to be restricted to 25 yr amortizations, here is one possible result. The most basic tenet of economic theory would suggest that the resulting reduced demand for homes would trigger an increase in supply.
    This means that home values would deflate, causing many home-owners to have mortgages in excess of their home values. Mortgage Renewals would no longer be as automatic as they are today. There would probably be a rash of foreclosures, which would exacerbate the problem of over-supply. Is that good for the banks? NO!.
    Is that good for the economy? NO!.
    And if the restriction were to be applied to all mortgages, the result would be magnified by an unknown multiple.
    Check the experience of our neighbours to the South and note the consequences of over-supply.
    I think an alternative public policy initiative for government is to discourage any programs/products which pose the threat of mortgage payment shock to homeowners. Programs such as the variable rate mortgage and the need to renew one's mortgage every 3, 4, or 5 years. Instead, government should encourage the 25 or 30-yr mortgage.
    This would promote a more stable payment environment for homeowners over the long-term.
    Ironically, it would seem that the very medicine which is being prescribed for a cure of the perceived illness would be the agent that worsens the sickness.
    This is a very interesting and important topic and I hope the Feds will follow the discussion.
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