Housing commentator Garth Turner cites insider info that long-term amortizations are about to go extinct, at least where the federal government has jurisdiction.
In a blog post today, he writes:
“Last week the CEOs of the monster banks were given a clear message that 30-year mortgages need to be wiped away. Completely. In fact, they’ll be banned. That letter will go out next week, the result of a decision made jointly by the Department of Finance, OSFI (the bank regulator) and the Bank of Canada.”
This applies to mortgages that: (a) are from lenders subject to federal regulation, and (b) have 20% or more equity. Amortizations on prime mortgages with less than 20% equity are already capped at 25 years.
If true (with emphasis on the word "if"), this news could:
- Increase monthly payments on new conventional mortgages by about $53 per $100,000 of mortgage, other things being equal.*
- Potentially impact even smaller non-bank lenders (e.g., First National, Street Capital, MCAP,…). That’s because, as Turner adds:
“Regulated financial institutions will also be prevented from buying any securities which are made up [of mortgages] with 30-year ams.”
Virtually all non-deposit-taking lenders rely on securitization and/or selling mortgages directly to banks. - Make provincially-regulated credit unions the only game in town for amortizations over 25 years. That would provide credit unions who keep long-amortization mortgages on their balance sheets with another advantage versus the banks. CUs already sidestep federal mortgage rules by offering HELOCs above the federal 65% loan-to-value (LTV) maximum, higher LTV stated income mortgages and mortgages with lower qualification rates.
* Assumes a fixed rate of 2.89%, 20% or more equity and an amortization reduction from 30 years to 25 years.
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