A veteran B.C. broker is adding his voice to those suggesting the government “encourage” rate-competitive 25- and 30-year mortgages like those in the U.S, a way of easing pressure on homeowners facing increased financial uncertainty.
“I think an alternative public policy initiative for government is to discourage any programs/products, which pose the threat of mortgage payment shock to homeowners, programs such as the variable rate mortgage and the need to renew one’s mortgage every three, four or five years,” said Top Mortgage Lenders President Vans LeBlanc, also an MA in economics. “Instead, government should encourage the 25 or 30-year mortgage.
“This would promote a more-stable payment environment for homeowners over the long-term.”
LeBlanc joins the growing chorus on mortgage industry professionals suggesting the government make any guideline changes needed to actively move the banks in the direction of offering affordable long-term mortgages well beyond the standard five-year fixed.
That move would likely require changes to the Interest Act, while others have challenged the feasible of banks borrowing mortgage funds at fixed rates for much longer terms.
Still, U.S. banks are currently offering 25- and 30-year rates below Canadian prime, rates that are largely set by bond yields.
While the Big Five in this country all offer 10-year mortgages, their posted rates are usually more than 1.4 percentage points above those for five-year terms. The gap between rates for the limited number of 18- and 25-year mortgages is even wider, effectively pricing buyers out of that market.
LeBlanc is promoting the idea of moving the Canadian industry away from the shorter-term mortgages, which have their roots in 1800s farm industry protections, quickly becoming industry standard.
His suggestion comes as several bank economists suggest the government may move early this year to do away with the 30-year amortization, a way of curbing record-high levels of consumer debt.
Many mortgage brokers oppose such a move, arguing it would undermine the real estate market and spark a correction.
“Ironically, it would seem that the very medicine which is being prescribed for a cure of the perceived illness would be the agent that worsens the sickness,” LeBlanc told MortgageBrokerNews.ca. “The most basic tenet of economic theory would suggest that the resulting reduced demand for homes would trigger an increase in supply. This means that home values would deflate, causing many home-owners to have mortgages in excess of their home values.”
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