Vancouver mortgage brokers

CMHC 40-year mortgage - good or bad for home owners?

By ebizniz on July 3, 2007 - 11:50am

An article by Vancouver Home Mortgage:

In addition to CMHC 40-year mortgage, Genworth Financial has a similar program for home buyers in Canada. Sky-high house prices are making home ownership less affordable to cash-strapped home buyers. Some economists and housing analysts are arguing that longer amortization is bad for home owners.

The danger in stretching a 25-year mortgage to the CMHC 40-year mortgage is that it will hurt home buyers who in the first place cannot afford to buy their own homes. The program is a two-edged sword. Yes, the lower monthly mortgage payment enable home owners in buying their homes, but it will also likely become a huge financial burden to the home owners. Generally, home ownership under this program will hurt rather than help these home owners.

Here are the reasons and adverse consequences of a CMHC 40-year mortgage:

1) By stretching a 25-year loan to 35 or 40 years, financially weak and cash-strapped home buyers are added to the pool of existing home buyers, causing further house price escalation.

2) A home owner buying a home for example at $342,500 with 10% down payment, has to pay $6,345 (2% mortgage insurance) on a traditional 25 year loan. But, he or she has to pay $8,248.50(2.6% as an extra 0.2% is to be paid for every 5 years over 25 years), $1.903.50 more on the insurance premium required for a 40-year loan.

Genworth: Higher house prices into 2011?

By ebizniz on June 23, 2007 - 5:13pm

A web-log posting by Vancouver Mortgage.

This week, Genworth predicts higher Canadian house prices into 2011 and ‘relief’ for buyers with longer amortization term and lower-down payment requirement.

The report quoted:

“In Vancouver, new home price increases are forecast to be 7 per cent in 2007 to an average of $673,706, compared to a 6.9 per cent average hike last year. Vancouver new home prices are then forecast to climb 4.3 per cent annually on average from 2008-2011. Growth in Vancouver resale home prices is forecast at 11.7 per cent this year to $569,689, down from a 20 per cent resale home price rocket in 2006, and increases of more than 13.5 per cent in 2005 and 2004. Vancouver’s resale home prices are expected to rise a more modest 6.6 per cent annually through 2011″.

I think the price increase predictions could be too simplistic for the following reasons:

1) The impact of higher mortgage interest rates on housing market sentiment was not mentioned, and this could trigger a price correction. With possible 0.5% to 1.0% interest rate increase this year and early next year, I suspect housing demand will drop, and the market may take a dive.

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