Brokers weigh in on amortization recommendation

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Longer amortization periods for first-timers will help brokers broaden their client base, but a number of industry players believe it may not necessarily be a good move.

“With rates as low as they are it would be easier for clients to qualify; however, I like 25 year amortization periods because buyers can build equity quicker,” Jonah Wright of Mortgage Intelligence told “The applications I usually get from first-timers are from people who are buying later in life, so I don’t know if longer amortizations would benefit them.”

The Canadian Home Builders Association is calling for longer amortization periods for first-time buyers. The Globe and Mail has obtained government documents that show the CHBA had 61 meetings last month with officials and politicians to discuss proposals including longer amortization periods for first-time homebuyers.

Of course, the Canadian government has shortened the maximum amortization period for Canadians in a number of different measures meant to cool the housing market.

And while brokers’ initial sentiment may be to support the CHBA’s recommendation, certain players believe more thought and care should be put into the decision.

“You can look at it in two ways – extending the amortization period would open up the market to a lot more people to qualify,” John Papadopoulos of Verico Advent Mortgage Service told “On the other hand if rates go up it could put people in a bad financial position.”

Papadopoulos admits it will create more clients, but he also suggests a tiered system if the government does decide to consider the CHBA’s recommendation.

“If they want to extend the amortization period they should do it at certain points,” he said. “For example, clients should be required to put down more than five per cent to qualify for a longer amortization to ensure they have more skin in the game.”
  • Debbie on 2015-06-25 9:34:52 AM

    I don't think 30 yr amortization is too bad. but 35-40 yr ams did nobody any favours. you simply won't build any equity in your home for a very long time with the longer amortizations.

  • Omer Quenneville on 2015-06-25 9:38:18 AM

    Shorter amortization builds in a safety net for banks to insure enough equity to pay the huge clearly undisclosed discharge penalties. At the same time I think everything possible should be done to get first time buyers into the market so they can start building equity for future retirement etc... we will pay later when they retire without equity or require subsidized housing now, Some people need help to get started not road blocks.

  • Warren Ross on 2015-06-25 10:01:25 AM

    I think the amortization should remain at 25 years, but i think first time home buyers should be allowed to pay interest only payments in the first five years, even on an insured mortgage. This will enable first time home buyers the ability to furnish and renovate their homes without running up too much consumer debt. I figure on a 250k mortgage, a home buyer could save roughly 500 a month that they could use for renos and furnishing, or roughly 30k over 5 years. Perhaps a cash back component can be added with proof of renos or furnishings. Perhaps the combined rate of interest only on the mortgage and the cash back could be much lower than the current 5% cash back rates that nobody can afford.

  • Keith on 2015-06-25 10:13:15 AM

    There is more behind the CHBA request than helping people buy houses. The CHBA sees the longer amortization as way for their members to make more profit per house sold!

    With the longer amortization they can increase their prices by $10,000-$20,000 per house, which is all profit and the buyer will have roughly the same payment. Yes there is some market influence on price, however, they market their homes on the monthly mortgage cost more than price. No different than a car dealership.

  • Bob on 2015-06-25 10:33:52 AM

    Extremely self serving for homebuilders to advocate for longer amortizations, I dont believe for one second that they have the customers best interest at heart. They are simply looking to increase their market share & any broker who sides with this is not looking out for the clients best interests either

  • Ron Butler on 2015-06-25 12:05:31 PM

    Ditto Keith and Bob's point, crazy, self-serving nonsense from home builders looking to increase profits. And forget the interest only insanity. Honestly, some mortgage brokers need to be more professional. Some home prices in this country have 100% in the last 5 - years while wage inflation has gone up about 14.5% compounded. For Heaven's sake, if some mortgage professionals cannot understand this is NOT a time to provide any further stimulation for property purchases they need to hand in their licenses.

  • Nancy on 2015-06-25 12:35:41 PM

    IMO I think they should determine maximum amortization by area. In the higher priced areas they should extend the amortization to assist people to buy a home.

  • Jim Thornton on 2015-06-25 1:27:21 PM

    Warren: That is the craziest thing I have heard. You think that amortizations should stay at 25 years but you think that payments should be interest only during the first 5 years. What? What kind of logic did you use to come up with that?

    Think about it... The proposal is for longer amortizations for FIRST TIME BUYERS. How is it possible that first time buyers would be better paying off NO PRINCIPAL at all in the first five years so they can buy a bunch of furniture. How about people stop using debt to buy stuff? We have a debt crisis in this country and you think it would be better to tack that debt on for 25 years instead. In fact, with your solution, those buyers would finish with a mortgage higher than they started with (after insurance premiums).

    I think that the idea of offering 30 year amortizations for first time buyers is actually a good one. If there is true concern about new home builders exploiting it, there is a very easy solution. Only allow 30 year amortizations on resale properties.

  • Omer Quenneville on 2015-06-25 1:31:33 PM

    Exactly Jim. We do need two sets of rules, one for first time buyers and one set for everyone else. Don't be too hard on Warren, it is just an opinion and give him credit for using his name.

  • Henry on 2015-06-25 1:32:01 PM

    For longer than 25 years at least 20% down needed and many people can't afford it.
    The best thing is another market crash that will makes the houses more affordable.

  • Jim Thornton on 2015-06-25 1:33:31 PM

    I wanted to go in and edit that post after reading it because it came across a lot harsher than I was intending. Unfortunately, I was not able.

    I was just trying to point out the fact that First Time Buyers would be in a much worse scenario if we went to interest only. Not to mention, the low interest rates and then jump up is part of what caused all the problems.

  • Debbie on 2015-06-25 1:52:01 PM

    no...interest only payments for 5 yrs when you only put 5% down and paid the NEW high premium (now THAT was a cash grab!!) is actually a crazy thought. Sorry Warren.
    And i agree that CHBA is self serving on the request just so they can increase profits, and I disagree that it should go by higher priced areas. If you are going to increase the amortization it should be for everyone. I also think that 30 yr amortization is more than enough for high ratio. It will help some, and won't do too much damage. Some people are only putting 5% down even though they aren't first time buyers, and its more likely because when they sold they paid off debt (get it?) and now find themselves with only 5% down. Refinance is none existent anymore unless you sell.

  • Jim Thornton on 2015-06-25 1:57:27 PM

    Refinancing isn't non-existent now. It's just starting to come back but that is to be expected when people refinanced to 95% for 5 year terms.

    I disagree that if you do for one than you have to do for all. I think the concept of helping first time buyers is good. But, for others, if you can't do a 25 year mortgage then you shouldn't be buying a new home. Home ownership I think is an important thing for peoples financial future. However, owning the biggest/best isn't important. You should only up-size if you can truly afford it. However, there are situations where people have to move to another city because of a job, etc. But, those are much fewer situations than first time buyers.

  • Debbie on 2015-06-25 3:14:22 PM

    Jim, everyone's situation is unique. how can you argue that one is any more important than the other. It may look like they are over-reaching but you don't know what the internal factors are, and I'm pretty sure the insurers don't want to start making those kind of calls either. If you do it for one do it for all. Remember, that premium increase on 5% down has to cover something.

  • Jim Thornton on 2015-06-26 10:29:12 AM

    Debbie, the issue isn't being fair or not being fair. The tightening that was done a couple of years ago directly affected first time borrowers. The B-20 & B-21 have directly affected first time borrowers.

    I think that everyone understands that the government has to try and do something to stop people from using their home as a piggy bank that they can raid every 3 years to pay off debt. However, the changes that were made directly affected first time borrowers. They are at an extreme disadvantage because while they sit on the sidelines, the prices are continuously going up (at least lately).

    By changing the amortization for first time buyers (resale only) you would effectively be able to get some of those people on the sidelines into home ownership. Currently home owners are already in the market so if they have to wait a little longer for moving up or something, then so be it.

    It's not a matter of do for one do for all (or not). Something has to be done to not encourage people to raid the equity in their home and refinance (again).

  • Debbie on 2015-06-26 10:44:01 AM

    If that truly was the concern...(first time home buyers) then why the increase in the premium just for 5%? How do you see that helping??? And why would it matter if its a new home or a resale? Are first time buyers expected to only purchase old homes? There is too much up for debate here. Why not just bring back 5% down ONLY for first time buyers? What a can of worms that would open! It's just picking it apart too much, make a ruling and stick with it.
    I think the least damage is just to allow the 30 yr amortization OPTION again on 5% down period, doesn't matter who or what your situation is. You won't have refinance in there because you can't. This would only be on purchases and would apply to anyone.

  • Jim Thornton on 2015-06-26 10:51:41 AM

    I'm not saying it is the government's concern. The proposal is to bring 30 year amortizations for first time buyers. One of the arguments was that CHBA was just using this for the purpose of being able to drive up the prices of their houses. Perfect, if it is truly about helping first time buyers, then put a restriction in there that it is for resale only. That way CHBA can't exploit it to make further profits.

    As for the premium... I'm not saying that CMHC and the government are trying to help first time buyers, but if that is the reason for doing this then put safe guards in place.

    As for the refinance. If someone sells their house, moves to another house with 5% down and uses the money to payoff debt, they have effectively refinance. Althought it is not a smart way of doing it, there are many that do it that way. So, but only allowing first time borrowers the extended amortization, they eliminate that from happening while still allowing new home owners to get into the market.

  • Debbie on 2015-06-26 11:05:37 AM

    It's not the gov'ts business to control how people handle finances. If there are people selling and moving every 5 yrs just so they can pay off debt, (that in itself would be a very small percentage I think, you could probably add them to the situations where they sell because of moving for a job etc)
    See why there is no easy answer? Everyone is different and everyone sees things differently. There will never be a right answer.

  • Warren Ross on 2015-06-26 11:15:32 AM

    Fellow mortgage professionals.
    Thank you for your comments regarding my interest only proposal. Based on what I wrote, I agree with what you are saying. That being said, my suggestion was only partially complete as I wanted to stimulate the idea without writing a full policy that would address your concerns. I assumed my fellow mortgage professionals would assume that the appropriate risk deterrents were in place.
    First time home buyers are crucial in the home buying food chain and they need help. Between increasing student debt, lower starting salaries, and increasing cost of living, first time home buyers are delaying their purchases later and later, and thus negatively affecting their financial future.
    As you well know, buying a home requires more than saving for a down payment. Homes require appliances, furniture, and maintenance, and if you want first time homebuyers to save for that as well, you might as well delay their purchases by another 5 years.
    My typical first time home buyer barely scrapes together their down payment, and 90% of the time, they end up with 25k of high interest debt after 5 years, simply due to the above mentioned expenses, and surprises that life brings.
    My suggestion of allowing interest only payments on the mortgage portion for the first few years, with a side loan integrated for furnishing and renos, integrated or not integrated in the mortgage, will help spread the cost of buying a home properly for FTHB without making them run up dangerous amounts of high interest credit card debt as in the current model.
    In regards to safeguards, higher qualifying rates could be used, and making sure that money is spent on home furnishings and renos. Sure there will be people trying to play the system a little, but for the vast majority, I think it could be helpful.
    remember we are talking about FTHB's only.

  • Ron Butler on 2015-06-26 11:45:39 AM

    Honestly, this stuff is so silly, every financial agency in the world thinks Canadian real estate is over priced. Even Ben TaL who is arguably the finest mind in the Canadian property financing industry thinks property value is over-shot although not a bubble. So let's make it simple: there cannot be any form of stimulation in property financing not for any group not in any way. As professionals we have to start thinking about the reality of the marketplace and not act like the homebuilders who just promote self-serving foolishness that rational people can see though instantly. If we truly are professionals let's be mindful of realities. I am not expressing an opinion here when I discuss high property valuations, I am expressing facts, just like gravity.

  • Jim Thornton on 2015-06-26 11:55:33 AM

    Ron, you are right that stimulating the housing values is not wise if your only concern is that of investing in real estate. It not a matter of self-serving foolishness. It's about offering affordable housing for people. That is why I'm not a proponent of making changes for people that currently own houses. But with the amount of rents these days, it is increasingly difficult for renters to buy their first house.

    The effect on the overall economy would be minimal making it a little easier for first time buyers.

    Here is the issue... If you don't make it easier for them, maybe we will put off some kind of a correction in the short term. But as you said, every decent economist is saying the market is over valued. So, offering an easier entry point for first time buyers isn't going to "cause" a correction. We're already poised for one either way.

  • Ron Butler on 2015-06-26 12:03:55 PM

    Jim, Economics 101: the FTHB creates the whole real estate marketplace. You need the FTHB purchase to allow for any move up purchase. That is simplicity itself. Any form of FTHB stimulation pushes the whole market up.

  • Debbie on 2015-06-26 12:19:37 PM

    Ron you have valid OPINIONS just like everyone else on this platform. Your approach however is very condescending. You answer like everyone else's opinions are wrong. lighten up eh!

  • Jim Thornton on 2015-06-26 12:21:57 PM

    Thanks for the free Economics Lesson, but I am very familiar with how things work thank you. I'm not saying bring back 0% down payment at fully discounted rates, or 44% TDS with no regard to GDS or anything like that. Simply allowing 30 year amortization for FTHB on resale homes only. This is a small percentage of all the FTHB's out there and therefore would likely have a minimal effect on the overall market/economy.

    As we experienced in 2008 when market set backs happen the banks/lenders tighten their wallets. So, by allowing those FTHB into get into the market (that can under those guidelines), they can then weather the storm as home owners. Rather than waiting 2+ more years for the banks to get off their wallets after a correction thereby spending more money on expensive rents. Remember we have a shortage of rental units in most cities, so if the market does correct itself then there are a bunch of people that could maybe afford home ownership sitting in rental units when there will be people losing their homes and the rental prices will go up.

    The first and biggest problem for our economy is the massive amounts of household debt that people have. Not a 25 or 30 year amortization on a principal residence.

    Let's get back to the original proposal though. CHBA is proposing 30 year amortizations for FTHB. The community is saying that CHBA is doing that for their own interests to increase prices and ultimately profits. My answer to that was if it is TRULY to help FTHB then just put in a restriction for resale homes only. That's it. Going to 30 years isn't a bad idea for FTHB, but I'm not advocating to go make sweeping changes to increase business for us, so don't blow it out of proportion here.

  • Jim Thornton on 2015-06-26 12:23:04 PM

    Well said Debbie. But hey, it's nice that we all got a free economics lesson! Very generous of Ron.

  • Ron Butler on 2015-06-26 12:45:30 PM

    Debbie and Jim need to pay closer attention to the lesson, opinions are just pointless key strokes when they are just goofy. My point was never addressed in 4 paragraphs of blather. FTHB create the market for move up buyers so how does any stimulation for FTHB not stimulate the whole system. Wait............. you still won't give a cogent answer. I will sign off now, month end is roaring in my ears.

  • Omer Quenneville on 2015-06-26 12:49:46 PM

    Even Ben TaL is wrong as often as he is right. One way or another we subsidize "first time buyers". We either carry them in their senior years or we help them into the market now so they have a retirement nest egg. We either build social housing or help them into the market. We either offer first time buyer incentives or we pay somewhere along the way. The pride of home ownership for those that can only almost reach the bar with a little help is were lives change the most. It is that simple. We just have to decide how we pay for this segment of the population. Doing nothing is always the wrong thing to do. I recently sold a small condo in Toronto for $165,000. I said to the banker, this might be the smallest deal you will see this year but it is the biggest dream.

  • Debbie on 2015-06-26 12:53:28 PM

    Ron what would we all do without your great wisdom to guide us fools through?

  • Omer Quenneville on 2015-06-26 1:13:29 PM

    Debbie and Jim... the greatest ideas and inventions were considered really dumb the day before.

  • Jim Thornton on 2015-06-26 2:30:05 PM

    Ron, the problem with Economics 101 is that it is followed up by 201, 301, etc. If you think that Economics 101 is in depth enough to determine how a country's economy is run/handled, then you are sadly mistaken.

    I realize that you have laid out in 4 very precise paragraphs, but that doesn't make you right. The segment of the market that I'm talking about is such a small segment that it probably wouldn't affect the overall market in anyway. I'm not talking about the whole FTHB market. I'm talking about just the segment that would qualify if they changed it to 30 year amortizations. That's it.

    As Omer has stated. It makes a big difference for them. And, if keeping amortizations at 25 years is not going to stop a market correction, then why not help that small segment own their own home?

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