New mortgage rules aimed at making homeownership more accessible for younger generations may have unintended consequences, leading to increased debt, higher interest payments, and greater risk for taxpayers.
The changes are ostensibly designed to help consumers, especially millennials and Gen Z s, realize their dreams of home ownership by lowering the cost of down payments and monthly mortgage bills. But they will also cause younger homeowners to rack up mortgage debt, pay more interest and leave them in hock longer than previous generations – all while needlessly exposing taxpayers to more real estate risk. As of Dec. 15, the price cap for insured mortgages was increased to $1.
5-million, up from $1-million, enabling buyers to purchase costlier homes with smaller down payments. Homebuyers must pay for mortgage insurance – which reimburses a lender if a borrower defaults on a loan – if a buyer makes a down payment that is less than 20 per cent of a home’s total purchase price. The government is also making 30-year amortizations available to all first-time homebuyers and all buyers of new builds, allowing them to make smaller monthly mortgage payments by giving them an additional five years to pay off their home loans. Don’t be fooled. These relaxed mortgage rules mean that young people will be weighed down by debt for longer and end up paying more interest before their home loans are repaid in full.Stretching a mortgage’s amortization from 25 to 30 years could shave money off a monthly payment but result in tens of thousands of dollars of additional interest costs over the life of a mortgage, she said.Looser rules for insured mortgages are also unfair to taxpayers. Mortgage insurance is backed by the federal government. That means a higher price cap for insured mortgages creates more risk for taxpayers, who serve as the ultimate backstop for those higher loan-to-value home loans. Ms. Rogers estimated that one in four mortgages in Canada is insured at origination. As a result, approximately $590-billion in outstanding mortgage debt is backed by the federal governmen
FINANCE HOUSING Mortgage Rules Home Ownership Millennials Gen Z Taxpayers Interest Rates Risk
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