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119 sats \ 14 replies \ @Undisciplined 5 Mar \ on: Increasing Number of Canadian Homeowners Offside econ
Is this primarily from people losing their jobs or not being able to keep up with inflation?
I don't think so. I think it relates to people over leveraging themselves to buy houses they couldn't afford when they could get mortgage rates at 2% and now have to renew at 6%. Most mortgages in Canada are 5 year term. They are ammortized over 25 or 30 years but mortgage term is only 5 years so when you go to renew after 5 years and rates have gone up you could see significant increases in your monthly payment. I renewed my mortgage last September and the payment went up about $300 a month. I have a small mortgage compared to most people in Canada so some folks would be looking at huge jumps in monthly payments. Add that onto the cost of everything else going up over the past few years and the insane amount of debt Canadian consumers hold and it's a perfect storm for insolvency.
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I always forget that outside of the US mortgages tend to be adjustable rate, rather than fixed rate. That's an awful situation to be in.
We're sitting pretty on a big ass mortgage fixed at a historically low rate.
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You can still get a fixed rate mortgage with a 30 year ammortization period but the term will be 5 years. So the rate is only fixed for 5 years.
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I’m guessing Canada 🇨🇦 doesn’t have an agency like Fannie or Freddie. USA banks sell loans to other banks or Fannie or Freddie after 5 years or less
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Fannie Mae balance sheet is laughable
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Correct
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As opposed to the rate adjusting in real time? That seems like such a crazy long-term contract to me. I assume they don't adjust the principle down when home prices fall, so you're just getting the downside of market swings.
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There are variable rate mortgages and fixed rate mortgages. Variable rates fluctuate quarterly or so based on current market rates. Fixed rate mortgages don't change until the end of the term so if you have a 5 year fixed rate mortgage you should have the same rate in year 5 as year 1. Then after 5 years you renew or pay off your mortgage but no one pays it off.
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Just another reason to not live in Canada
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Here is a screenshot of a rate calculator I used to give you an idea what kind of variance in payments folks with larger mortgages could be looking at compared to when rates were much lower.
This is based off a 1M home in Toronto with a 200k down payment. Average home price in Toronto is around 1.2M so this would actually be a smaller mortgage than what a lot of people have.
If you do not put at least 20% down you also need to buy mortgage insurance. If you put 100k down instead of 200k in this scenario you would pay around 30k in mortgage insurance.
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We actually have relatives who got an adjustable rate mortgage in the Seattle area back when rates were at an all-time low. It was quite a shock to them when their monthly payment basically doubled.
The husband always acts like he's smarter than everyone and knows the right way to do everything, so we've gotten some perverse enjoyment out of his mistake.
Me too
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