Canadian Homeowners Looking at 90-Year Mortgages—Real Estate News Roundup

Potential homebuyers everywhere know they need to keep up-to-date on all the latest mortgage and real estate news. Why? Knowing the trends of mortgage rates and real estate developments will determine how they can save money and leverage their best mortgage for the best home. 

Here’s what’s happening in the last full week of June 2023. 

Latest average U.S. Mortgage Rates 2023-06-22

• 30-year fixed: 6.67% (previous week: 6.69%)
• 15-year fixed: 6.03% (previous week: 6.10%)
• 30-year FHA index: 6.706% (previous week: 6.635%)
• 30-year fixed rate Jumbo index: 6. 827% (previous week: 6.864%)

Stay informed with Homefinity about rate fluctuations that could impact your loan decision.

Homeowners in Canada now seeing possible 90-year mortgages

A recent article in the Toronto Star reports that, as interest rates skyrocket up north, some homeowners have had to agree to alarming amortization periods spanning up to ninety years to stay current with “fixed-payment” variable-rate mortgages. 

According to local mortgage brokers, banks are frequently extending their amortization periods beyond the usual 25 years to unheard-of amortization periods of 60, 70, and even a 90-year. 

This has left many homeowners with serious concerns about the longevity of their mortgage payments.

How some Canadians got “hosed”

According to experts, Canada has two types of variable-rate mortgages (known as ARMs in America): a variable-rate fixed-payment mortgage and an adjustable-rate mortgage that floats with changes in the prime rate. 

During a high-interest-rate period, homeowners with a variable-rate fixed payment are in a riskier position because a greater percentage of their monthly payments are going toward the interest instead of the principal. As a result, it takes them longer to pay off their debt—sometimes MUCH longer.

Recently, a Toronto mortgage broker came across a homeowner with an 87-year amortization. 

The homeowner may not realize what is happening since their mortgage payment stays the same. But since they’re now paying less principal, they’re more in debt. 

Homeowners in this sort of situation have, reportedly, three options: pay more towards the principal, opt for a fixed rate, or pay a lump sum as high as 20% of the original balance. 

Did PPP fraud lead to higher home prices?

According to the Federal Reserve Bank of San Francisco, U.S. home prices experienced a 24% upswing from November 2019 to November 2021 owing to changing demand and local migration trends. 

But recent research suggests that areas with higher rates of fraudulent PPP loans may have further stimulated the housing market.

According to Sam Kruger, the Assistant Professor of Finance at the University of Texas, Austin, the impact of the cash stimulus, which was targeted at specific areas, has been noted to play a significant role.

PPP payments used to purchase property

The study discovered that certain markets experienced increased levels of PPP loan fraud, and funded individuals were more likely to purchase the property. 

Kruger stated, “This is a specific stimulus that funneled cash into these areas and appears to have had a significant impact.” 

According to the paper, postcodes categorized with high rates of “suspicious lending per capita” had a growth rate in home prices that was 5.7% higher than the postcodes in the same county with lower levels of fraud. 

The authors claim that other alleged reasons for the growth rate in house prices during the Covid period are relatively dwarfed by this effect.

Even when factoring in land supply, remote work accessibility, population density, and prior home price growth, the results remained constant. Proximity to the central business district and previous rates of remote work was also considered.

That’s it for this week. Check back to Homefinity’s blog every week for an update on the real estate market happenings at home and across the world. 

Pre-approval from Homefinity can be one of your best advantages to get the home you want and beat out the competition. 

If you’re looking to buy a home or refinance your mortgage—start here.