Ellen Roseman: Benefits of a healthy Canadian mortgage market
- January 10, 2008 7:45 AM |
- By Ellen Roseman
Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).
By Ellen Roseman, personal finance columnist, Toronto Star
(Listen to the original audio)
The Canadian mortgage market is healthy and thriving, unlike what's happening in the United States. There's never been more flexibility for borrowers.
Take the amortization period, the amount of time you have to pay back the loan. You used to get 25 years. Now you can stretch the payback to 30 years, 35 years or even 40 years.
This can be helpful for first-time buyers or move-up buyers who want to get more property for the same payment. But remember, the extra years of amortization can add hundreds of thousands of dollars to your total costs.
The down payment requirements are also more liberal. No longer do you have to put down 25 per cent of the price for a conventional mortgage without buying insurance against default. Now you need only a 20 per cent down payment to avoid the insurance premiums.
There used to be only two mortgage insurance providers. Canada Mortgage and Housing Corp. was the crown corporation with a dominant market share and General Electric (now called Genworth) was the private sector rival.
Now a third player, AIG United Guaranty, has burst onto the Canadian scene with a batch of innovative products. The other providers are scrambling to keep up, knowing that other U.S. companies plan to come up here.
Mortgage insurance protects lenders from default. It allows them to offer low and no down payment options, which can be combined with long payback periods, making it easier for cash-strapped borrowers to afford the homes of their dreams.
Is this a sign of a frothy real estate market? Is Canada sliding down the same slope of predatory lending that has hurt the U.S. market? What if property values start going down? Will many borrowers suddenly default?
So far, mortgage arrears are not going up. In fact, they're the lowest in a decade. Canadians are borrowing conservatively and keeping up their payments in a strong job market. Still, no one knows what the future will bring.
My advice: Budget carefully before buying a house or trading up to a new one. Know what your total costs are, not just your monthly payments. Don't accept all the credit that you qualify for, since some mortgage innovations profit the lender more than you.
For the Business Network, I'm Ellen Roseman in Toronto.
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