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Shocking Revelation. Cheaper Mortgage Payments May Boost Home Prices

As longer amortizations make mortgage payments more affordable people are realizing how this might just drive up home prices.

The latest indication was a scathing letter from our Bank of Canada Governor to the Canadian Mortgage and Housing Corporation, the biggest mortgage insurer in Canada.  The Globe and Mail quotes the Governor, David Dodge as calling CMHC’s new mortgage products "very unhelpful" in the Bank of Canada’s attempts to keep inflation at 2%.

We agree.  But good or bad, it’s tough to fight the insatiable consumer demand for these products.

On a side note, shouldn’t Dodge’s comments be directed at the Canadian mortgage insurance industry as a whole?  CMHC isn’t the only one offering amortizations over 25 years. 

Canada’s new crop of private insurers will likely get a lot more aggressive with new mortgage products than trusty ol’ CMHC.  CMHC’s interest-only mortgage doesn’t lower borrower qualification criteria, for example, but AIG, PMI, and other new insurers might not be so conservative.

Full Globe and Mail story