How can I be certain, or better stated; what leads me to this conclusion?

 

 

Simple - mortgages.

 

 

Well, because banks, lenders etc., want to make money and when there is an absence of transactions due to whatever reason(s) you decide to attribute our market situation to, they aren't lending and or insuring mortgages, or in other words - they aren't making as much money.  

 

 

So how does a bank or lender make money? By charging consumers transaction and account fees, you might say - not really... yes those account fees add up to a nice sum but banks make the real money off of interest incurred by lending money, and mortgages are some of the BEST lending products banks can offer. The loans are secured against an asset (your home) AND you the borrower pay to insure the loan so that the bank collects every penny owed no matter what!

 

 

Real estate prices have pretty much leveled off... I don't see the market crashing or really dipping significantly lower than where it is. With the stress test being applied to every mortgage these days we see a rather large reduction in purchasing power. This has caused a gap between what people can qualify to borrow, and what real estate costs. Unless you're the sudden benefactor of an estate, got lucky with stocks or hey, maybe at the casino, the best way to bridge this gap is via extending your amortization period which up to now has been 30 years.

 

 

Enter, Genworth Financial. Genworth is now the first mortgage insurer to cover a 35-year mortgage. The largest home mortgage insurer, CMHC announced a few weeks ago that they would insure 30-year mortgages. Why is this happening? Simple, so that people can buy more expensive homes and the banks can start lending more money. 

 

Now this is tricky and has BIG cons that must be weighed against the pros.

 

 

First the pro - You can afford the property you need/want, whatever; you will qualify to spend more money!

 

The con - You are going to spend MUCH more money than may you think! 

 

 

YES you get a lower monthly payment, thus qualify for a higher amount to borrow.. you also pay more interest on the amount you borrowed.

 

Consider this, at today’s interest rates, with a 25-year amortization, you pay the lender almost twice what you borrowed – almost $580,000 in payments on a $300,000 mortgage.

 

 

In the case of a $300,000 mortgage and a 35-year amortization,monthly payments fall from $2,000 a month to about $1,700, but the amount you dish over rises by $135,000, to a substantial $712,000. 

 

 

SO, you qualify for more and you pay more, MUCH more.

 

 

Ladies and gentlemen this is the 'solution' we've been waiting for that will allow us to spend more money.. take it or leave it, you decide for yourself if it's the right move.

 

Oh, and by the way... I wouldn't be surprised if we see amortization options hit 40 yrs before spring 2019, and the market is cyclical; meaning we will eventually see a repeat of 2016 :)