For Canadian homeowners, particularly in British Columbia and Ontario, rising interest rates are adding over 90 years to the payback period…but that’s not all.
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Mortgage experts interviewed by Newsweek say they have seen these changes among some homeowners who have agreed on a variable rate with fixed monthly payments.
In order to pay the same amount every month, banks have to extend the payback period by several years, sometimes up to 90 years.
With the key interest rate increase, the financial institutions were forced to adjust their key interest rate.
The latter rose from 2.45% to 6.95% between March 2022 and June 2023.
AFP
Experts warn that the consequences for these borrowers’ portfolios are significant.
For example, a borrower taking out a $500,000 25-year mortgage with an interest rate of 5.80% would pay about $448,000 in interest.
That number would rise to about $2,124,000 if the mortgage were extended beyond 90 years.
“Interest rates have risen so much that the only way to keep the monthly payment unchanged is to extend the loan’s amortization period,” says Holden Lewis, real estate expert at NerdWallet.
If a landlord wants to sell their home, they might find themselves in an unfortunate situation as they would not have accumulated enough equity.
David Stevens, former CEO of the Mortgage Bankers Association, warns borrowers about the risks that come with fixed monthly payments but also risk managers.
The expert explains what situation an owner could find themselves in after 10 years of repayment.
“Because the average homeowner has owned their home for less than 10 years, the inability to develop capital can mean they hold on to their home when they want to sell it but don’t have enough money to pay all the selling expenses. ” he says.