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Canada does not have 30 year mortgages. Most home owners have mortgages with 3-5 year terms. Since 3-5 years ago rates were low, and home prices were low, peopl

Canada does not have 30 year mortgages. Most home owners have mortgages with 3-5 year terms. Since 3-5 years ago rates were low, and home prices were low, people's mortgage expenses are still low. However that's about to end. As people either bought at much higher prices in the last 2 years, and/or the older mortgages are getting renewed at higher interest rates. This will result in drastic increase in what people need to pay to stay in their home.... possibly causing a market crush.

jimbob45 4y ago
3-5 year mortgage? Aren’t the monthly payments totally destructive to one’s financial health?
- kspacewalk2 4y ago
  The renewal periods are typically 3-5 years. The standard mortgage amortization period in Canada is 25 years.
kspacewalk2 4y ago
>This will result in drastic increase in what people need to pay to stay in their home This will result in a drastic increase in what a relatively small number of homeowners need to pay to stay in their home. Specifically, those who bought a house to live in in the last 3-4 years. >possibly causing a market crush. Before losing their home, this relatively small number of people (plus a larger number of those who will experience much more moderate mortgage payment increases) will cut back on spending for literally everything else. This will have a very significant impact on the rest of our economy. Which, in fact, is the whole point of inflation targeting - cool down the economy when inflation is out of control.
- btilly 4y ago
  Specifically, those who bought a house to live in in the last 3-4 years. Also those who renewed in the last 3-4 years. Which realistically means most of those who bought in the last 20-25 years. That's likely over half of all homeowners - not so small a fraction after all!
  - kspacewalk2 4y ago
    >Also those who renewed in the last 3-4 years. No. Those who paid the exorbitant prices of the last 3-4 years. I've renewed recently, and borrowed the ~$100k remaining on my mortgage at a historically low rate. If I had to renew at twice that rate it would not make a huge impact on my finances, because I'm currently paying interest on a five-figure principal.
    - btilly 4y ago
      But it still would impact you. Across all Canadians, we're talking about $1.5 trillion (CAN) in mortgage debt. That's on par with the GDP. If you hike the interest rates to match your inflation, that's like sucking 5% of your GDP into interest payments. This will be a pretty dramatic event, no matter how it is distributed.
      - kspacewalk2 4y ago
        It will certainly be a dramatic event, but it still matters how it is distributed. To make up some numbers by way of example, if 4 million people have to pay $50/month more, I believe it has a significantly smaller effect on the economy than 1 million people having to pay $200/month more.
  - davidgay 4y ago
    Yes, but interest is front-loaded on mortgages, so the impact is much lower for those 20-25 years in.
- cecilpl2 4y ago
  > Specifically, those who bought a house to live in in the last 3-4 years. No, everyone in Canada has to renew their mortgage at least every 5 years, into whatever the prevailing interest rate market is at that time.
  - kspacewalk2 4y ago
    The vast majority of 28% of Canadian households who are currently carrying a mortgage did not buy their house at peak bubble prices, i.e. within the last 3-4 years. They carry a much more modest debt load, have paid off more of their mortgage, and this will significantly dampen the effect of rising rates on their finance.
    - steve_adams_86 4y ago
      Yes, my understanding is this tends to hit recent buyers and those who have had to remortgage. I don’t have numbers, but it seems reasonable to believe this makes up a small portion of homeowners.
trelane 4y ago
Wait, so all mortgages in Canada are ARMs by another name?
VogonPoetry 4y ago
Governments are in a privileged position to get this data and they likely have it and have reasonable models. The classic knob to influence inflation is interest rates. This can be also be modeled. Non-politicised civil servants have a good record of being able to do a reasonable job at this - only if the politics are removed. In my opinion, removing all political allegiance for civil servant agencies is probably the best way to get better long term stability and prosperity.
cecilpl2 4y ago
You are correct that in Canada we don't do 30-year fixed mortgages. We only lock in interest rates for a 5 year term. However, we have what's called a stress-test. In order to get a mortgage at the previously low 5-year fixed rates of 2%, you still had to qualify as though the rates were >5%. This means that if rates go up to 5% everyone should still be able to afford their payments.
- steve_adams_86 4y ago
  This is all correct. It is worth nothing that other expenses are increasing quickly and consistently, so the stress test could be undermined slightly. I don’t mean to be alarmist or anything here. It has just been on my mind as a recent home buyer. The stress test was performed on my finances under conditions which have already changed (for the worse). I doubt the bottom will fall out of things, but I expect this to bite some people and to hear about it in the medias.
Sohcahtoa82 4y ago
> Most home owners have mortgages with 3-5 year terms. As an American, this is easily misinterpreted to mean the mortgages are expected to be paid off in 3-5 years, which would be mind-blowing if true, because it would mean that either houses are super cheap, or only the rich are buying. IMO, adjustable-rate mortgages are almost a scam. Are there any legal protections in place to disallow a bank from deciding "In the next period, we're going to raise your rate to 20% because fuck you the CEO wants another yacht"?
- jeromegv 4y ago
  Yes. Competitoon with other banks and other lenders. The market is your protection. Just like one oil company could triple the gas price if they want. Doesn’t mean people will keep getting their gaz there however.
  - MadcapJake 4y ago
    So you're able to change banks if the interest rate is not competitive?

jimbob45 4y ago

3-5 year mortgage? Aren’t the monthly payments totally destructive to one’s financial health?

kspacewalk2 4y ago
The renewal periods are typically 3-5 years. The standard mortgage amortization period in Canada is 25 years.

kspacewalk2 4y ago

>This will result in drastic increase in what people need to pay to stay in their home This will result in a drastic increase in what a relatively small number of homeowners need to pay to stay in their home. Specifically, those who bought a house to live in in the last 3-4 years. >possibly causing a market crush. Before losing their home, this relatively small number of people (plus a larger number of those who will experience much more moderate mortgage payment increases) will cut back on spending for literally everything else. This will have a very significant impact on the rest of our economy. Which, in fact, is the whole point of inflation targeting - cool down the economy when inflation is out of control.

btilly 4y ago
Specifically, those who bought a house to live in in the last 3-4 years. Also those who renewed in the last 3-4 years. Which realistically means most of those who bought in the last 20-25 years. That's likely over half of all homeowners - not so small a fraction after all!
- kspacewalk2 4y ago
  >Also those who renewed in the last 3-4 years. No. Those who paid the exorbitant prices of the last 3-4 years. I've renewed recently, and borrowed the ~$100k remaining on my mortgage at a historically low rate. If I had to renew at twice that rate it would not make a huge impact on my finances, because I'm currently paying interest on a five-figure principal.
  - btilly 4y ago
    But it still would impact you. Across all Canadians, we're talking about $1.5 trillion (CAN) in mortgage debt. That's on par with the GDP. If you hike the interest rates to match your inflation, that's like sucking 5% of your GDP into interest payments. This will be a pretty dramatic event, no matter how it is distributed.
    - kspacewalk2 4y ago
      It will certainly be a dramatic event, but it still matters how it is distributed. To make up some numbers by way of example, if 4 million people have to pay $50/month more, I believe it has a significantly smaller effect on the economy than 1 million people having to pay $200/month more.
- davidgay 4y ago
  Yes, but interest is front-loaded on mortgages, so the impact is much lower for those 20-25 years in.
cecilpl2 4y ago
> Specifically, those who bought a house to live in in the last 3-4 years. No, everyone in Canada has to renew their mortgage at least every 5 years, into whatever the prevailing interest rate market is at that time.
- kspacewalk2 4y ago
  The vast majority of 28% of Canadian households who are currently carrying a mortgage did not buy their house at peak bubble prices, i.e. within the last 3-4 years. They carry a much more modest debt load, have paid off more of their mortgage, and this will significantly dampen the effect of rising rates on their finance.
  - steve_adams_86 4y ago
    Yes, my understanding is this tends to hit recent buyers and those who have had to remortgage. I don’t have numbers, but it seems reasonable to believe this makes up a small portion of homeowners.

trelane 4y ago

Wait, so all mortgages in Canada are ARMs by another name?

VogonPoetry 4y ago

Governments are in a privileged position to get this data and they likely have it and have reasonable models. The classic knob to influence inflation is interest rates. This can be also be modeled. Non-politicised civil servants have a good record of being able to do a reasonable job at this - only if the politics are removed. In my opinion, removing all political allegiance for civil servant agencies is probably the best way to get better long term stability and prosperity.

cecilpl2 4y ago

You are correct that in Canada we don't do 30-year fixed mortgages. We only lock in interest rates for a 5 year term. However, we have what's called a stress-test. In order to get a mortgage at the previously low 5-year fixed rates of 2%, you still had to qualify as though the rates were >5%. This means that if rates go up to 5% everyone should still be able to afford their payments.

steve_adams_86 4y ago
This is all correct. It is worth nothing that other expenses are increasing quickly and consistently, so the stress test could be undermined slightly. I don’t mean to be alarmist or anything here. It has just been on my mind as a recent home buyer. The stress test was performed on my finances under conditions which have already changed (for the worse). I doubt the bottom will fall out of things, but I expect this to bite some people and to hear about it in the medias.

Sohcahtoa82 4y ago

> Most home owners have mortgages with 3-5 year terms. As an American, this is easily misinterpreted to mean the mortgages are expected to be paid off in 3-5 years, which would be mind-blowing if true, because it would mean that either houses are super cheap, or only the rich are buying. IMO, adjustable-rate mortgages are almost a scam. Are there any legal protections in place to disallow a bank from deciding "In the next period, we're going to raise your rate to 20% because fuck you the CEO wants another yacht"?

jeromegv 4y ago
Yes. Competitoon with other banks and other lenders. The market is your protection. Just like one oil company could triple the gas price if they want. Doesn’t mean people will keep getting their gaz there however.
- MadcapJake 4y ago
  So you're able to change banks if the interest rate is not competitive?