A CAAMP report reveals that most Canadians are opting for
longer amortization periods without expecting it to have an adverse impact on
their retirement plans. As reported in the Financial
Post, the study indicates that more Canadians are capitalizing on longer
amortization terms, something that has been a rarity in the past.
In fact, 42% of mortgage originations in 2009 had an
amortization term exceeding twenty-five years. Over the longer loan term, the
borrowers effectively end up making a substantially larger payment to the mortgage lender.
This is a big jump considering that even in 2005, it was impossible to avail
insured mortgages with such high amortization periods backed by the Canadian
government. At present, the amortization limit for insured mortgages set by the
government is 35 years.
More surprisingly, Canadians with longer amortizations say that
they plan to retire at 61.9 years on average while those with less than a
25-year amortization also plan a similar 61.5 years retirement age.
Canadians are opting for longer amortization terms to lower
monthly payments. But Credit Counseling Canada executive director Patricia
White said that while people have a tendency to take the easier route, they
must also give serious thought to getting rid of mortgage debt as quickly as
possible. Canadian Home Builder Association president Victor Fuime commented
that people end up paying off their mortgages over multiple generations,
quoting the UK as a classic example and added that Canada is now following its
lead.
Longer amortizations are fine as long as Canadians are
confident that their home values will see an increase because they will have
fewer mortgage debt-free years for savings. At this juncture, it is difficult
to imagine that longer amortizations will not impact retirement plans.
