CMHC President Opposes Longer Mortgage Repayment Periods Amid Rising Interest Rates

Title: CMHC President Opposes Longer Mortgage Repayment Periods, Calls for Increased Housing Supply

Introduction:
In a recent statement, Canada Mortgage and Housing Corporation (CMHC) President and CEO Romy Bowers expressed her opposition to borrowers repaying their mortgages over longer periods. Bowers believes that while longer amortization periods may reduce monthly payments, they ultimately increase the overall cost for homeowners. Instead, she emphasizes the need to focus on increasing the supply of available homes to address the affordability issue in the housing market.

The Impact of Longer Amortization Periods:
Under Canadian lending regulations, borrowers must repay their mortgage over a maximum of 25 years if their down payment is less than 20% of the home’s purchase price. However, those with a down payment of at least 20% can benefit from a maximum amortization period of 30 years. Proponents of longer amortization periods argue that they provide borrowers with more flexibility and help them balance their monthly budgets. However, critics counter that longer amortization leads to higher interest costs over the life of the mortgage, resulting in slower home equity accumulation.

Bowers’ Concerns and Alternative Solution:
Bowers expresses concern that longer amortization periods may seem like a quick fix but fail to address the underlying problem in the long run. She believes that extending write-offs and solely relying on longer amortization periods won’t solve the housing affordability issue, especially in markets with limited supply. Instead, Bowers advocates for increasing the supply of available homes to create a more balanced market with a range of prices. By developing more purpose-built rental housing and other types of homes that meet buyer demands, affordability can be improved.

Lessons from the UK and Rising Housing Prices:
Bowers draws on the experience of the UK, where a government scheme providing grants to first-time homebuyers in London resulted in start-up home prices rising by the exact amount of the grant, nullifying affordability gains. She warns that extending the amortization period could have a similar effect, driving up property prices. This caution is particularly relevant as the Canadian housing market experiences rising prices once again. The Canadian Real Estate Association reported an increase in the national average house price, with the Greater Toronto Area and parts of British Columbia exceeding the $1 million threshold.

CMHC’s Role and Future Considerations:
As the head of CMHC, Bowers emphasizes the importance of multiple levels of government working together to quickly create more purpose-built rental housing and other types of homes that meet buyer demands. She believes that procurement should be the focus of the plan to address the housing affordability issue effectively. Bowers also highlights the rising costs of mortgages due to increasing house prices, mortgage rates, and interest rates in recent years. Additionally, she questions whether the million-dollar cap on mortgage loan insurance acts as a barrier to providing coverage across Canada and prompts discussions on potential solutions.

Conclusion:
CMHC President Romy Bowers opposes longer mortgage repayment periods, citing increased costs for homeowners over time. Instead, she calls for a focus on increasing the supply of available homes to address the housing affordability issue. Bowers draws on the UK’s experience and warns against the potential negative impact of extending the amortization period on property prices. As housing prices rise again in Canada, Bowers emphasizes the need for collaboration among government entities to create more purpose-built rental housing and other types of homes.

average mortgage interest rate uk 25 years

The example of the United Kingdom, where longer mortgage repayment periods have led to soaring housing prices. She highlights that in the UK, longer repayment periods did not result in increased affordability but rather fueled higher prices. Bowers warns against following the same path in Canada and suggests that a focus on increasing housing supply is a more sustainable solution.

CMHC’s Approach to Increasing Housing Supply:

CMHC, under Bowers’ leadership, is taking steps to address the issue of housing supply. The corporation is working with all levels of government, as well as private and non-profit sectors, to encourage the development of affordable housing. CMHC provides financial support, grants, and initiatives to facilitate the construction of affordable homes and rental units. Bowers believes that by diversifying the housing market and providing more options for buyers, the overall affordability will improve.

Conclusion:

CMHC President Romy Bowers opposes longer mortgage repayment periods and instead calls for increased housing supply as a solution to the affordability crisis. While longer amortization periods may provide short-term relief for borrowers, they ultimately lead to higher costs and slower equity accumulation. Bowers emphasizes the importance of addressing the underlying issue of limited housing supply and suggests that by increasing the range of available homes, the affordability problem can be tackled more effectively. CMHC is actively working towards this goal by collaborating with various stakeholders to promote the development of affordable housing.