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Mortgage Broker News | 29 Jun 2016, 08:15 AM Agree 0
Loophole might rear its head come renewal time for 5-year fixed terms, which can compound the already startling rate of growth in household debt in recent years
  • Ron Butler | 29 Jun 2016, 10:32 AM Agree 0
    Okay I just ran the numbers and if the client's rate went from 2.49% to 3.49% using 30 year amortization and semi annual compounding the monthly payments increased precisely 13.5% not 40%. A 3.00% increase to 5.49% would cause a 43.1% increase in payments. The interesting thing is 5.49% in 5 years is not impossible and then yes, many Canadians might have a heck of a time making their mortgage payments.
  • Dianne Chafe | 29 Jun 2016, 10:33 AM Agree 0
    It is important that you advise your clients how much their payment would be if the rate were to rise to the 4.65% in 5 years. If they divide that over 5 years and increase their payments each year they will be fine.
  • David Larock | 29 Jun 2016, 10:54 AM Agree 0
    This article omits a key point - mortgage balances are lower at renewal, and this helps cushion the impact of higher rates on future payments.

    Today, a $500,000 five-year fixed-rate mortgage at 2.49% amortized over 30 years has a monthly payment of $1,970.

    Assuming that only minimum payments are made over the initial five years, that borrower’s balance at renewal would be $440,182.

    If that borrower then renews into a five-year fixed rate at 3.49% amortized over 25 years, their new payment would be $2,195 (which is an 11% increase – hardly a wallet-busting increase for most).

    Also, if that borrower was under financial strain, he/she could refinance that balance into a 30-year amortization instead, which would make their new monthly payment $1,968 (which would be $2 less than their original payment, despite the 1% rise in rates).

    Not sure how this leads to the “future crisis” the headline warns about?
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