US President Donald Trump’s proposal for a 50-year-old supplier may sound appealing to many first-time homebuyers in America who are looking for an affordable way to enter the housing market.
But many industry observers have offered the idea of extending the loan period of 30 years in the US Register.
And that less-than-ideal view will gain traction any time soon in Canada, where sentencing periods have been shortened over the past two decades.
Trump first floated the idea earlier this week with a post showing his social media site showing it A portrait of former President Franklin Delano Roosevelt under the title “Prayer for 30 years,” and one of them under the title “Loan for 50 years.”
That was followed by a post from Bilte Pulte, director of finance for the Federal Housing Agency, who said the longer loan would be “a complete game changer.” At the time, the White House said the expansion would ease affordability pressures.
“It says everything that you pay less per month,” Trump said in an interview with Fox News. “You pay it off for a long time. It’s not like the big Factor. It can help a little.”
Benefits and Costs
Joseph Gyourko, a professor of architecture and finance at the Wharton School at the University of Pennsylvania, says there are both benefits and costs to the 50 percent mortgage.
The benefits are obvious, he said, noting that Trump’s monthly payments would be lower. But the cost includes paying “too much” in the faith of the life of the loan.
For example, according to a calculation by The Associated Press, a person buying a $415,200 house (the average selling price of a home in the US in September), would pay approximately $389,000 more in interest over the span of a 50-year mortgage compared to a 30-year mortgage.
“The reason you pay interest is to pay off your loan, very little,” Gyourko said. “Most of the first-year payments are interesting, not major.
“You’re just paying interest for a long time,” he said. “So I would tell my kids, who are in their late 20s, don’t do this. I just don’t think the risks are worth the benefits.”
Gyourko says the real problem with getting money is not demand, but lack of supply.
“This is a sought-after resident intervention, and I think we should stay focused on trying to build more.”
Richard Kent Green, professor at aventSouthern California Marshall School of Business and expert in housing markets, housing policy and mortgage finance, said 50A wear loan will reduce payments, but probably only by a small amount.
“One of the things we don’t know is what interest rates will be in 50 years [loan] related to a 30-year loan. We know there will be more. How bad are we?
“So depending on what the interest rate would be, your savings could be as little as two, three percent or maybe even less.”
More gimmick than solution
At that point, Green says the owner of the 50-year mortgage will have built up more home equity slowly. “So you’re going to be at greater risk of default if market conditions change, if house prices fall.”
He says he sees Trump’s proposal more as “a gimmick, not a solution.”
As for Canada, there are fundamental differences in how debt is handled here compared to the US, said Penelope Graham, financial expert at TarteHub.ca.
“It’s the main reason for the risk in Canada,” he said.
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In the US, people are locked in at the same rate for decades and don’t renew their loans every time, Graham says, while in Canada, a mortgage holder might renew the payments three or four times.
This difference is due to the way road loans are financed in each country, he explained. In the US, mortgage lenders pool their money to invest and sell it as money-backed securities.
“The reason they do this, it takes the risk out of the real financial institution. And it helps them actually fund these loans,” he said. “And it is because of this structure that they can offer this long term loan. “
KnowinglyADA, mortgage loans are burned through Depositings Business – Savings Accounts and GICS, for example.
“And the risk timeline for those is usually five to 10 years. They can actually do that safely for five to 10 years,” Graham said.
“In the US, they have a lot of secured loans sold to investors. But in Canada, everything has to be put under real deposits.”
Graham says Canadians are not looking to extend their maximum penalty period.
“There has been initial discussion, but it hasn’t gone anywhere.”
Back in 2007, the Harper Government allowed Canada’s mortgage and home loan (CMHC) to guarantee loans for up to 40 years. But less than a year later, in the shadow of the US subprime crisis and financial meltdown, Ottawa tightened the rules, reducing the charging period to 35 years.
And that grace period continues to dwindle.
The government did it in stages, Graham says, but eventually returned to the current time period of 25 years for those borrowers with insurance and 30 years for uninsured.
He says the government released a little last year, but only for some of the last-stage households, allowing them to delay for up to 30 years.
“But that was the only tweak we’ve seen in the long run. And it’s unlikely they’ll go back and make the 40-year cost widely available,” he said.
“And the reason for that is, the longer the catch the longer the time, the more dangerous and the more expensive.”
The federal government allows longer repayment periods for first-time buyers with home equity loans. Andrew Chang examines the pros and cons of a 30-year 25-year mortgage for prospective homeowners. Correction: at 1:38 in this video, we reversed that 20% of $500,000 is $125,000. It’s $100,000. Edited for clarity.
In a CBC news release, financial experts in Canada said they have extended the length of the secured spending extension from 25 to 30 years, and continue to encourage the federal government to extend this option to all consumers.
But it acknowledges that any consideration of longer spill times must be carefully balanced to protect the robustness and integrity of our system. “
Economist Ron Betler says that while the government has done something more with the money paid, it has proven reluctant to make the change.
“The government likes the fact that prices are falling. They don’t want to create an artificial stificals by 40 or … 50 years of age. ”
However, he believes they are reaching a point where they can afford a 30-year loan time for all.
“It’s not there yet, but it’s coming soon.” Butler said. “But that will be the case for the foreseeable future.”
