Longer amortization periods leave some mortgage holders 'stuck' and unable to get ahead financially
CBC
Calgary mortgage broker Max Singh says it's like running full tilt, but getting nowhere.
A financial morass where you can't get break free.
"You're not moving forward with your financial picture," said Singh.
Singh, who's been in the financial services sector for 20 years and a mortgage broker in Calgary for the past nine, says he's seeing more clients accept longer amortization periods to lower their borrowing costs.
Thirty-year terms, even 35.
Singh says in many cases it involves clients who are trying to refinance an existing mortgage with a variable interest rate and are seeking relief from rising interest rates.
"They're coming back to their institution being on variable rates, looking at extending that amortization due to the impact of rising interest rates on their monthly borrowing costs," he said.
He says new clients seeking their first mortgage are also opting for longer amortization periods.
Singh says some clients are unable to secure financing from the big banks and turn to private lenders, who in some cases charge much higher interest rates.
"That is leading to massive increased costs on the back end, primarily interest costs being paid for a significant period of time."
Two of Canada's big banks say they are seeing an increase in customers seeking longer amortization periods for their mortgages.
RBC says in its most recent report to shareholders that 43 per cent of its mortgages carried amortization periods greater than 25 years, nearly one-quarter of them (23 per cent) carried an amortization period greater than 35 years.
TD Bank's numbers are slightly higher at 48 per cent of remaining amortization periods greater than 25 years. TD's most recent quarterly report also shows 23 per cent of those mortgages have an amortization period of 35 years or more.
There's a big problem with these longer amortization periods, according to the Credit Counselling Society, a non-profit group that helps Calgarians with budgeting and restructuring their debts. The problem it says are more interest payments, and delayed savings and retirement.
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