40-50% of borrowers in the past year chose mortgages with 30 to 40-year amortizations, according to a report penned by CIBC Economist Benjamin Tal.
Despite the extra buying power afforded by these mortgages, Tal thinks the majority of these buyers would have purchased the same house even if 30 to 40-year mortgages didn’t exist.
Tal therefore “suspects” that long-term amortizations are not inflationary since they do not “represent additional demand.”
In the report, Tal also encourages regulators to look kindly on “mortgage innovation,” which includes, among other things, specialized mortgages for the self-employed. The self-employed workforce, he says, grew 7.5% in the past year, six times faster than regular employees.
I’m in the camp of the same home. Technically we can afford the 25 year payments. With my spouse back to work we will be smooth sailing. After graduating she decided that she wanted to go independent rather than working for someone. This means startup costs and little income at the start while she builds up a client base. This wasn’t part of the original plan, but probably wouldn’t be possible to pay all the childcare, and the mortgage and other things that come along with a house if we chose a 25 year schedule. I’m glad we went 35 year at this point which will allow us to pay for (not quite afford, but at least pay for) everything with just my salary alone. Give it a couple of months and if all goes well she’ll be making more than she has in the past and our family income will be back up to be well over half of the home value.
So far so good, I hope the next few months just keep getting better and we pay the whole thing off in under our 10 year goal.
I have to completely disagree with Benjamin Tal on this one. If people can’t afford a house without longer amt. mortgages then having access to those mortgages surely supports higher prices. Logically speaking, more buying power = more ability to pay more. Paying more drives up prices. What am I missing??