Peter Aceto, President of ING Direct, told the Toronto Star that he’s worried about Canada’s real estate market.
He made several candid statements in an interview Thursday, including these:
- "Canadians are…paying their homes off slower and slower, and the concern for me is that they are buying more house than they can really afford."
- “"You have situations in some markets such as Toronto where people are making multiple offers for homes, they are paying thousands more and waiving conditions. It gives me concern they may not be thinking rationally…”
- "It's almost as if Torontonians feel very concerned they are missing something with such low rates…”
- “Can (homeowners) afford to pay for their mortgage five years from now, when interest rates go back up?"
- "Canadians have been proud internally that we're very different than the Americans in the way we behave in terms of our spending habits and the way we deal with credit. But over time we have become a lot closer than we think,"
Aceto says over 50% of this year’s Canadian mortgages had amortizations over 25 years. The Star reports that ING Direct staff have been told to try and steer clients away from 35-year amortizations when possible.
Aceto says, "We shouldn't be interested in just selling mortgages to get our numbers up for the next quarter.”
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Last modified: April 28, 2014
Nothing new about what he states in the article. How about ING then offer 6% rates on 5 year terms that way people will already be braced for higher rates in 5 years if he is so concerned, PR article at it’s finest.
Good for ING!
I wonder how many of the 50% with terms over 25 years are like myself where we are making payments as if it were a 25 year term, but got the 35 as a hadge against possible job loss (or other economic changes).
Any prudent lender should run an approval at historical rates, not current rates. If a purchase doesn’t cash flow @ 6% or 7% interest, its probably not a good idea.
Anything beyond a 20 year amortization does not provide significant payment relief. 100,000 @ 5% over 20 years is $657/mo, vs. 35 years is $501/mo. The 35 year amortization adds $52,700 in interest costs to the mortgage, and cripples borrowers, as they will likely want to retire before their mortgage gets paid.
I feel that multiple offers are to a greater extent a reflection of the huge gap between Supply and Demand of Real Estate and not necessarily low interest rates. There is a huge shortage of homes in the market because sellers who are on an unexpired fixed rate mortgage of 5% or more prefer to delay their plans to sell their homes due to exorbitant penalties charged by banks including ING to break the mortgage. On the other hand the pool of qualified buyers has increased due to lower interest rates.
I disagree with Peter Aceto that buyers are not being prudent and simply putting in multiple offers because of lower interest rates. I believe that in a lot of cases the real estate agents are consciously listing the properties at prices much lower than the area comparables in order to generate interest, maximize showings and thereby generating a multiple offer situation to the benefit of the seller. There are many homes on the MLS ™ that are overpriced and not selling.
Rajesh, you are absolutely correct!
I’m stuck in a 5.69% 5 yr mortgage and while I’d love to sell, taking a $20,000 hit because of the ridiculous penalties the Lender is charging me makes it totally pointless. I will try and sell in 2 or 3 yrs time but who knows where the market will be then. My advice to people is not to lock into 5 yr terms unless you are VERY sure you don’t want to move house or sell at anytime within that period or you could be hit with huge penalties imposed by these banks and lenders.
@Al – If you move to a new house your mortgage should be portable without penalty.
Dont believe anything Peter says
Quote from above – “The 35 year amortization adds $52,700 in interest costs to the mortgage, and cripples borrowers, as they will likely want to retire before their mortgage gets paid.”
This is very misleading because the big majority of people will pay off their mortgage well ahead of 35 years.