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"Discount" Mortgage Payments

Canadian home prices have been on a roll.  Problem is, many Canadians can’t afford them.

This Financial Post story shows how lenders are now making payments within reach, and the cost of it all. 

Points of interest:

  • Average Canadian home price:  $311,101
  • 25-year mortgage payment on this amount:  $1827
  • 40-year mortgage payment on this amount:  $1510
  • Percentage of Canadians amortizing over 25 years:  35%

      (figures based on a $0-down 5.1% five-year mortgage)

30-50 year mortgages are exploding in popularity because they let people afford houses they otherwise couldn’t.  The flipside?  Interest costs.

  • Interest on the 25-year mortgage above:  $237,253
  • Interest on the 40-year mortgage above:  $414,033

Many Canadians seem happily oblivious though.  More and more, homebuyers are living in the moment without concern for their long-term net worth.  Dare I say, it seems eerily similar to the mentality in places like California, at the start of the U.S. subprime era.

Side note: 

The story makes a strong point about pre-paying your mortgage:  “If your mortgage is at 6% and you’re paying with after tax-income based on a 50% marginal rate, you’re getting a 12% guaranteed investment. ‘Where are you going to get a 12% return on your investment?'”