And most folks have significantly more than that. In fact, 82 per cent of mortgages start with at least 20 per cent equity (the down payment), according to Bank of Canada data. “Many who need to extend to a 30-year amortization can do so because their equity has grown.” “In markets like the Greater Vancouver Area, most properties appreciate over five-year spans, and few people are putting down less than 20 per cent,” Ms. The trick, among other things, is that they need at least 20 per cent equity. Some will even go with an interest-only, non-prime lender that doesn’t stress-test the mortgage. Many cash-flow-challenged borrowers can refinance to extend their amortization. But that’s not going to cause a systemwide catastrophe for at least three reasons: (1) overall incomes will rise over five years, (2) most banks have distressed borrower programs – some allow 35- to 40-year amortizations on exception, and (3) other refinance options exist for those with 20 per cent or more equity. The lender will adjust the borrower’s payments to return them to their original amortization schedule and ensure they pay off the mortgage on time.Ī small minority won’t be able to handle even a 10-per-cent payment jump. For people in this position, when their term is over, the lender will want to limit its risk. On paper, as the share of payments going to the principal declines, it makes it seem like it’ll take far longer to pay off your mortgage – longer than the 25 or 30 years you originally signed up for, that is.īut here’s the thing. Eventually, if rates surge enough, your payment at some lenders might not even cover the interest due. With fixed payments, when rates go up, less of each payment goes toward the principal and more goes to cover the interest. (More than three in four floating – rate mortgages have fixed payments, while the remainder have payments that are adjusted up and down in line with rate changes). McLister: This week’s lowest fixed and variable mortgage rates in Canada Here’s how it worksĬonsider a case where you have a variable-rate mortgage with a fixed payment.
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