4 ms·

The amortization still goes down, you don't refinance on another 25 year mortgage typically. So if you kept the same home and refinanced every 5 years the 4th r

The amortization still goes down, you don't refinance on another 25 year mortgage typically. So if you kept the same home and refinanced every 5 years the 4th refinancing would be your last and you'd own the home outright after the term.

listenallyall 4y ago
> you'd own the home outright I don't live in Canada, not sure if you are right or wrong, but your claim is the exact opposite of the OP: what happens in Canada at the end of the loan term is that the homeowner either sells the house and moves (and thus pays off the remainder of the mortgage with proceeds from the home sale, before starting a new 5-year loan term in their new home), or they refinance and start a new loan term.
- Thorrez 4y ago
  I think the OP was ambiguous. The OP doesn't say the size or length of the new loan. If you pay it off before the 5 years is up, then you wouldn't take a new one.
  - listenallyall 4y ago
    Look at the amortization schedule of a mortgage. The first 5 years, you knock almost nothing off of the principal. If a Canadian mortgage is designed to backload principal even further to a balloon payment at the end, then even less of the principal is paid, and the rollover to the next loan is for almost the original amount. Perhaps I am misunderstanding what the OP described, but I don't see how a mortgage holder would ever pay off the principal in 5 or 50 years under that scenario.
    - papercrane 4y ago
      The commenter didn't explain Canadian mortgages well I think. They aren't really balloon payments. At the end of the 5 year term I'm not obligated to make a giant payment, it's just my interest rate automatically converts to the banks posted rate for a open floating mortgage. At that time I'm free to negotiate a new rate, or take my contract to another lender. If I got the same rate every 5 years the payment schedule would be the same as a 25 year fixed mortgage in the US at the same rate.
- kelnos 4y ago
  Right, I said: > or they refinance and start a new loan term I guess that may be ambiguous depending on where you are from, but where I live, the normal interpretation of "refinancing a mortgage" is to get a new mortgage for the principal remaining on your old mortgage, and pay off the old one with it. The new mortgage is for a smaller loan amount than the old one. Yes, some people do take the opportunity to cash out some of their existing equity, but I don't think that's the most common thing. So yes, you do eventually own the home outright.
  - listenallyall 4y ago
    > The new mortgage is for a smaller loan amount than the old one. if there's a huge balloon payment owed at the end, then the Canadian "homeowner" still owes a large amount after 25 or 30 years. So perhaps the next loan is for less, but still a significant amount. In the US, most people do complete their 30 year mortgage and the home really is paid off, although they continue to owe property tax. > a Canadian mortgage, your monthly payment is much lower than the numbers calculated above. ...which is why Canadian real estate is insanely expensive, even worse than the US. Buyers think monthly payment. If you lower the monthly payment, by whatever means -- extending the life of the loan, reducing interest rates, deferring principal, etc -- prices will rise. If Canadian mortgages have artificially low interest rates due to short-term rate resets AND defer principal to a balloon payment at the end, it's no surprise that Vancouver, Toronto, etc have become entirely unaffordable.
    - Majromax 4y ago
      > if there's a huge balloon payment owed at the end, then the Canadian "homeowner" still owes a large amount after 25 or 30 years. So perhaps the next loan is for less, but still a significant amount. In the US, most people do complete their 30 year mortgage and the home really is paid off, although they continue to owe property tax. There's no difference. A (first-time) Canadian homebuyer will typically take out a mortgage with an effective 25y amortization term over a 5y locked-in rate. At the end of the 5y, the homeowner who doesn't move will typically "renew" their mortgage for a 20y amortization term at the then-prevailing 5y fixed rate. If rates remain constant, then their monthly payment will be essentially unchanged. A (first-time) American homebuyer will typically take out a 30y fixed mortgage, with a 30y fixed rate and a 30y amortization period. At the end of 5 years, there is no paperwork to fill out but the mortgage will now have 25y left on its amortization, and the monthly payments will be unchanged. The main difference is that the US mortgage has a great deal of optionality built-in. An American homeowner can typically prepay the mortgage at any time without penalty, and the most common reasons to do so are to move or to refinance when rates are lower. The Canadian homeowner typically faces a prepayment penalty if they try to refinance before the end of their term.

listenallyall 4y ago

> you'd own the home outright I don't live in Canada, not sure if you are right or wrong, but your claim is the exact opposite of the OP: what happens in Canada at the end of the loan term is that the homeowner either sells the house and moves (and thus pays off the remainder of the mortgage with proceeds from the home sale, before starting a new 5-year loan term in their new home), or they refinance and start a new loan term.

Thorrez 4y ago
I think the OP was ambiguous. The OP doesn't say the size or length of the new loan. If you pay it off before the 5 years is up, then you wouldn't take a new one.
- listenallyall 4y ago
  Look at the amortization schedule of a mortgage. The first 5 years, you knock almost nothing off of the principal. If a Canadian mortgage is designed to backload principal even further to a balloon payment at the end, then even less of the principal is paid, and the rollover to the next loan is for almost the original amount. Perhaps I am misunderstanding what the OP described, but I don't see how a mortgage holder would ever pay off the principal in 5 or 50 years under that scenario.
  - papercrane 4y ago
    The commenter didn't explain Canadian mortgages well I think. They aren't really balloon payments. At the end of the 5 year term I'm not obligated to make a giant payment, it's just my interest rate automatically converts to the banks posted rate for a open floating mortgage. At that time I'm free to negotiate a new rate, or take my contract to another lender. If I got the same rate every 5 years the payment schedule would be the same as a 25 year fixed mortgage in the US at the same rate.
kelnos 4y ago
Right, I said: > or they refinance and start a new loan term I guess that may be ambiguous depending on where you are from, but where I live, the normal interpretation of "refinancing a mortgage" is to get a new mortgage for the principal remaining on your old mortgage, and pay off the old one with it. The new mortgage is for a smaller loan amount than the old one. Yes, some people do take the opportunity to cash out some of their existing equity, but I don't think that's the most common thing. So yes, you do eventually own the home outright.
- listenallyall 4y ago
  > The new mortgage is for a smaller loan amount than the old one. if there's a huge balloon payment owed at the end, then the Canadian "homeowner" still owes a large amount after 25 or 30 years. So perhaps the next loan is for less, but still a significant amount. In the US, most people do complete their 30 year mortgage and the home really is paid off, although they continue to owe property tax. > a Canadian mortgage, your monthly payment is much lower than the numbers calculated above. ...which is why Canadian real estate is insanely expensive, even worse than the US. Buyers think monthly payment. If you lower the monthly payment, by whatever means -- extending the life of the loan, reducing interest rates, deferring principal, etc -- prices will rise. If Canadian mortgages have artificially low interest rates due to short-term rate resets AND defer principal to a balloon payment at the end, it's no surprise that Vancouver, Toronto, etc have become entirely unaffordable.
  - Majromax 4y ago
    > if there's a huge balloon payment owed at the end, then the Canadian "homeowner" still owes a large amount after 25 or 30 years. So perhaps the next loan is for less, but still a significant amount. In the US, most people do complete their 30 year mortgage and the home really is paid off, although they continue to owe property tax. There's no difference. A (first-time) Canadian homebuyer will typically take out a mortgage with an effective 25y amortization term over a 5y locked-in rate. At the end of the 5y, the homeowner who doesn't move will typically "renew" their mortgage for a 20y amortization term at the then-prevailing 5y fixed rate. If rates remain constant, then their monthly payment will be essentially unchanged. A (first-time) American homebuyer will typically take out a 30y fixed mortgage, with a 30y fixed rate and a 30y amortization period. At the end of 5 years, there is no paperwork to fill out but the mortgage will now have 25y left on its amortization, and the monthly payments will be unchanged. The main difference is that the US mortgage has a great deal of optionality built-in. An American homeowner can typically prepay the mortgage at any time without penalty, and the most common reasons to do so are to move or to refinance when rates are lower. The Canadian homeowner typically faces a prepayment penalty if they try to refinance before the end of their term.