While bank economists seem increasingly resigned to the potential loss of the 30-year amortization, brokers insist that move would unfairly tie of the hands of clients looking to maximize the bang for their buck.
“I would say that most clients opting for a 30-year are well able to qualify for a 25-year one,” said Peter Puzzo, a mortgage agent with Assured Mortgage in Woodbridge, Ont. “So the government removing that option would really only reduce their cash flow and force them to put money into a mortgage instead of investing in other areas. I’m not sure that would send a good message to consumers.”
The analysis comes on the heels of a panel discussion of Big Five economists Thursday, with several suggesting the government is most likely to drop the maximum amortization to 25 years if, in fact, rising household debt spurs another round of mortgage rule changes.
“If we see the housing market surprise on the upside and debt growth surprise on the upside, then the government will likely take action to further tighten mortgage insurance rules,” TD Bank economist Craig Alexander said. “Quite frankly, if you can’t afford a mortgage at 25 years versus 30, then you probably shouldn’t be buying a house in the first place.”
Puzzo and many other industry veterans disagree, suggesting, 30-year amortizations are largely used to free up cash each month, money often better spent paying down higher-interest debt or channelled into high-yielding investments.
“It’s not a question of whether they can afford a shorter amortization,” he told MortgageBrokerNews.ca.
Still, the government may have little choice but to make some kind of move to further slow the growth consumer debt, the panel of economists said Thursday.
Specifically, total household credit debt increased by 5.5 per cent between 1991 and 2000 and by another 9.3 per cent in the 2001-2010 period.
But that’s in stark contrast to mortgage debt, according to a new CMHC report. The proportion of residential mortgage debt to household debt was fairly stable during the 2001 - 2010 period, fluctuating between 69.0 per cent and 67.7 per cent.