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The Big Story: Amortization again?

It’s becoming a broken record. Consumer debt levels rise and there are calls for the government to tighten mortgage lending. The latest rumour involves the lowering of the maximum amortization from 30 to 25 years. Many brokers disagree with the idea, suggesting 30-year amortizations are largely used to free up cash each month, money often better spent paying down high-interest debt.

In addition to amortization rumours, some lenders have recently cut or altered their products for business for self and new immigrants. Some brokers think this may be short-sighted, while others say the industry will adapt, like it has always done.

On today’s Big Story, we spoke to James Robinson of The Mortgage Centre-Mortgage Watch Inc., John Panagakos of Dominion Lending Centres-Home Financial Inc. and David Smith of Oriana Financial. Find out on today’s The Big Story, on MortgageBrokerNews.ca TV, your home for industry news, opinion and analysis.

 

Video transcript below:

John Tenpenny, Mortgage Brokers News TV
John Tenpenny:
 Hi, I’m John Tenpenny, Editor of CMP Magazine and welcome to the Big Story on Mortgage Broker News TV.

 
It’s becoming a broken record.  Consumer debt levels rise and there are calls for the government to tighten mortgage lending.  The latest rumours involve the lowering of the maximum amortisation from 30 to 25 years.  Many brokers disagree with this idea, suggesting 30 year amortisations are often used to free up cash each month, money better spent paying down high interest debt.  
 
James Robinson, Agent, The Mortgage Centre, Mortgage Watch Inc.
James Robinson:  Whether you have a 30 year mortgage or a 25 year mortgage, you borrow based on your monthly payment.  If you lose your job or if interest rates go up, the effect that’s going to have on your personal financing is not driven by the amortisation, it’s driven by the monthly payment.  If the government’s objective is to look after Canadians’ financial wellbeing, they need to take a look at the consumer credit and how that is managed by the banks.  I recently had a customer in my office, who brought me his Visa statement from one of the big banks, that had a disclosure on it that said that if he made his minimum payment every month, it would be paid off in a 121 years and 10 months.
 
That is not prudent lending and that needs to change.  People need to be approved for consumer credit exactly the same way as they are for mortgage credit.
 
John Tenpenny:  In addition to amortisation rumours, some lenders have recently cut or altered their products for business for self and new immigrants.  Some brokers say this may be short sighted, while others say the industry will adapt as it always has.
 
John Panagakos, Principal Broker, Dominion Lending Centres, Home Financial Inc.
John Panagakos:  There is rumours out there that the amortisation will be reduced on mortgages that are insured by CMHC, they may increase the down payments.  My reaction is there is a lot of factors being posed on insurers, on banks by external forces, none indicative what’s happening in Canada.  We are already seeing now new rules coming into place, eliminating any rental properties, low insured mortgages, stated income self employed, we are getting a lot of push back from external forces that are not indicative of what’s happening in Canada.  There is a lot of fear mongering going on and it’s not true what’s happening in our marketplace today.
 
David Smith, Broker / Partner, Oriana Financial
David Smith:  Well the rumours of amortisation came to nothing, what was true was the government was very concerned about the debt levels in Canada, yet they can’t raise rates for all kinds of reasons.  So what can you do but make it more and more difficult to qualify.  So amortisation is nothing compared to what they have now instituted this week.  So there is no doubt that it’s a challenge, but for those of us who have been around for a long time, we didn’t used to have stated incomes, we didn’t used to have immigrant financing, we didn’t used to have all these vehicles and we still made a good living.  So I think it’s going to be in the long term good for mortgage brokers, because I think they are going to see a lot of introduction of secondary private financing again and people are going to need us to come up with alternatives to what was formerly available in order to fund their clients.