More and more Canadians are extending the amortization on car loans as a way of qualifying for bigger mortgages, according to a new survey from J.D. Power and Associates.
In fact, more than half of those borrowing to finance their vehicles are opting for 72-month amortizations or longer, representing a nearly 40-percentage point jump from just five years ago.
“Consumers today just don’t think of the car as being $28,500,” said JD. Ney, with JD Power. “They think of it as being $500 a month. There’s a certain pain threshold – whatever it takes, we’ll try and keep that monthly payment.”
Playing with amortization on car loans is one way brokers have advised clients looking to prepare for a mortgage application.
Still, most mortgage professionals have counselled borrowers to opt for less expensive auto purchases as a better of preparing to meet debt-service requirements and win home loan financing.
That advice may be increasingly hard to follow, with brokers pointing to mortgage rule changes that have only strained the ability of many borrowers to qualify.