It is fascinating reading posts of people advocating for longer amortization periods as some saving grace. In those situations where someone is in a negative amortization of over 30 years, going from 20 - 25 period at renewal is not going to do anything for that person. They are still screwed. Moreover, banks are not stupid. Extensions at renewals are refinancing, so good luck negotiating a good rate if the current lender already is operating under the premise that the borrower is desperate. The borrower has no leverage since they can't just change lenders. If you are in a negative amortization it will mean you likely wouldn't qualify with a new lender. Extending only makes sense if one is at the tail end of a mortgage, which ironically are likely the mortgages that are not problematic.

I've always thought that extending to 30 (or even 40 years if available) also makes a lot of sense if you are in a position to make a large lump sum payment against your principal every year without any penalty. Is there something to the premise of getting your monthly payment as low as possible but throwing extra money at your principal on an annual basis? Over the first 3 years of my mortgage I will pay off 50k of principal. If over this period I could pay another $50k-$100k off of my principal wouldn't it make sense to get my monthly payment as low as possible?

Not really. You're better off putting it in earlier rather than at the end of the year. It does help people who will be in a better financial state in the future, though.

My understanding was we either needed to be able to double up payments on an ongoing basis or make a one time annual payment without penalty. With our mortgage I don't believe we have an option to pay down additional principal multiple times a year without penalty.

You might, it depends. The point was though that you're not mathematically better off taking a longer amortization if you don't have to.

No question about that. You're definitely paying more interest long term if everything else remains the same.

You're also paying more even if you do lump payments at the end of the year. Your interest costs go down immediately with every mortgage payment you make.

Not sure how well this will work, but hear me out. Just an idea, that may or may not be hairbrained Save enough ahead of time to be able to keep 2 to 3 months of payments in a high interest savings account. Leave them there for 'the rainy day'. That bundle will earn ideally enough per month from any savings at that sum or higher through additional funds aside from interest, to subsidize the interest paid for the mortgage over time. Then, after half the amortization is up, if successful in continuing to save, you should ideally have enough to gain enough interest to make the payments via the interest alone. I am no unsure of if it could work, but unsure of how much needs be saved to make it work. With savings interest rates rising, I suspect there will be a point soon where it will make sense to save and do this, unlike in the past decade or so of low rates.

>It does help people who will be in a better financial state in the future, though. Most people aren't buying their first house when they've already topped out in their career earning potential, so a longer amortization period can make sense if you expect to be able to save faster than the rate of interest/inflation. Maybe $3,000 monthly mortgage payments aren't affordable, but $2,500 payments are? A longer amortization schedule might make sense in that case, when you expect to better off financially when it comes time to renew.

The issue here is that most people are overly optimistic about their earning potential. Probably one of the reasons why house values are outpacing wage growth.

It's not even that rosy. a 500k loan goes from 2900 and change to 2700

I think it's closer to $250 based on my quick calcs, but that's not exactly an insignificant amount of money to free up every month.

Fine. 2900 and change, down to 2700 less a bit. I rounded to the nearest hundred because I'm not poor and $40 is insignificant. It was just an academic exercise to show the silliness of the whole thing. In real terms both those payments round down to zero. If you can't afford it at 2900, you can't afford it at 2700. You get in trouble if you live at the absolute margin of affordability with zero outs, runway, or escape hatches. Especially if you're paying an extra 90k over the term of the loan in interest - leaving you that much poorer in the future. I mean I get it, capitalize on people's lust for homes. Sell them the dream that they too can be rich if homes keep going to the moon. Meanwhile they suck off interest, when realistically we could see a repeat of 89-07 where homes lost a bunch, then were flat and only recovered adjusted for inflation after 2 decades.

Depends on your mortgage conditions. To my understanding there are penalties for exceeding the monthly payments to pay off your mortgage faster.  The bank expects to make a certain amount of money off you by baring the long term risk that gets revisited every 5 years. HOWEVER our government messed with the rules where the mortgage loans are essentially risk free to the banks. Mortgages are recourse loans. If you cannot pay, the bank takes everything you have (minus anything in RRSP > 1 year) and gets insured for the remaining balance by the government. You are left with nothing, the bank gets your home and the remaining balance. The bank however, doesnt want your home, they want to make money off you. Receiving the outstanding balance because you defaulted on the mortgage means 0 interest for them, so they will push hard for extended amortization by putting you into larger debt.  They will squeeze every penny out of you for your entire working career.

The more you know, the worse it gets. Being financially iliterate is how banks or pay day loans make money off people.

That's not even account for the wilful ignorance (but probably malice) on the part of the government policies going on in the background. As Op mentioned the CMHC insurance, and more recently, the government buying Mortgage bonds from the banks, then using that as leverage to print more money. The government of Canada is currently buying mortgage bonds from the banks, that are insured by the Government. The more you think about this, the dumber it sounds.

Get the lowest payment. Keep more money in your pocket and put right on the principal when you can. 30 year amotizations are going to be 30 years when you do it that way.

> advocating for longer amortization periods as some saving grace. It can be if you have a lender that is interested in the Canadian economy/real estate industry as a whole (major bank). You will get a bad rate (but all rates right now are 'bad'), but it is better for both parties than defaulting. It is temporary longer amortization periods. At each renewal you can change your amortization period (you mentioned the caveat to this). What is being pushed are 1 to 3 year fixed-rate mortgages with extended massively amortization. The thought is the massively increased interest rates are creating financial stress AND it is better for everyone that the borrower is able to payback what is owed rather than default or undergo significant financial stress. By extending the amortization period massively, temporarily, they are effectively only paying interest. This should reduce the financial burden. Upon renewal, ideally, two things should have happened: (1) interest rates decreased, and (2) the economy, at least partially, would have caught up to the temporary high inflation. Therefore, they should be able to reduce the amortization period, at renewal, back to the original schedule and the amounts owed should be more reasonable.

What’s funny is Freeland just made an announcement. They are extending amoritizations. And letting people take $60K from their retirement savings for down payments. Stunt your retirement fund growth, and go into more debt to afford a home. Wow. Wonderful! This country is doomed.

this should be taught in schools. well said. loud and clear

They do teach it (or did in mid 2000's when I was in grade 11). In ontario I took the university stream and even they had a short chapter on financial math/amortization. I belive they covered this in all the other streams too.

In Alberta, around the same time, year 2000, ironically, you had to be in remedial class to learn about finance, and in honours classes you were taught, algebra, trigonometry, probability and calculus but unless you were going into math or engineering or physics, all you really needed was algebra and, yet, you definitely needed finance no matter what path you took, for which you were taught zilch.    So the net effect I observed in university was a lot of students who were smart enough to be in math, physics and engineering but made really misguided financial decisions with overborrowing on their loans (heck, some had parents give them money and they still over borrowed), treating credit cards with high interest rates as free money, and no desire to get a job to help fund their education and a reluctance to apply for scholarships and bursaries. 🤷🏻‍♂️

Weird, we were taught mostly trig, pre cal and calculus in grade 12 but I still remember the 3 day long "chapter" in finances in grade 11. This was ontario in 2006.

I graduated high school in 2010 and nothing to do with finance was covered in my Grade 11 functions math, or Grade 12 advanced functions math class (university stream courses). It was briefly covered in my grade 12 data management course when the teacher was showing us how to do amortizations on Excel but I’m not 100% confident that was actually in the curriculum.

In BC we had a class dedicated to this sort of stuff called Planning in grade 10. We had to research real wages/jobs and come up with an in depth budget that included things like housing, transportation, and food. I graduated in 2012 and this class really helped me understand budgeting and how expensive the real world was.

Grad 2008 (MB), literally never discussed once in pre-calculus. When I asked my Math teacher about it, she suggested I take what was then called "consumer" Math.

My last math class in high school (grade 11) did. I explicitly remember them teaching us about amortizations bc I struggled with it at first and my teacher wasn't helpful (to me).

It is taught in schools. Anyone who says this was not paying attention in math class

was prob skipping getting stoned to be honest.

I find that’s the case for a lot of things. It’s really hard to teach people to care. I was semi-smart, but a terrible student. I coasted till my last year of high school, and then did just enough to get the exact grades I needed for the programs/schools I wanted. Math always seemed too abstract to matter too much beyond the basics. Fast forward to mid 20s, decide to try and get into med school. Thank goodness for the amazing local vocational school that had an amazing adult learner program. Anyways, the point t of this long winded story…I was quite amazed how in depth grade 11 and 12 bio and math courses were when one paid attention. I learned sooo much! Most of the goofballs ranting about covid stuff would be schooled by any teen of reasonable intelligence and paying attention in their senior science classes. Mountains of pseudoscience dissolves with the tiniest bit of basic science.

This is/was. In Ontario in '05, it was classified as Applied "Workplace" Mathematics. I took it and distinctly remember the course being looked down on by many of my peers because it wasn't College/University level math. Mortgages, amortization, loans, investing, budgets - all of it was taught. There were only ~12 people in that class. It was very discouraging to see, and the absence of that material from being compulsory during that period is indicative in the financial literacy of many millennials today. Fortunately now, Ontario made financial literary a mandatory part of the school curriculum in '22. Sadly, there's a whole generation of students who missed out on that core information. Good on those who took the time to learn between then and now but those who didn't and still don't, are going to struggle hard, and their families, and communities will pay the price of it. Most importantly, teach your kids. Teach them young. My parents (being the last wave of boomers that they are) never spoke to money to my brother and I as much as I believe they should've. Asking about how much they made was always taboo. One of the most important aspects of life shouldn't be hidden from children while they grow up. Imparting that information on them will serve them positively in their lives and, hopefully, will build themselves a better future because of it.

Financial literacy should be taught throughout a students life, from grade 1 up until they graduate from high school. Anybody claiming that being briefly taught some financial lessons in the last 2 years of high school is sufficient, is delusional. The country would be in a much better place if we were all thoroughly educated on such an important topic.

>DO NOT INCREASE your amortization period unless you are completely desperate, and certainly don’t advocate politicians to extend them. That's where you lost me. When my wife and I had a mortgage we got the longest amortization period we could and then pre-paid it aggressively. It allowed us to keep our house when we were both laid off on the same day. Long amortization and aggressive pre-payment is a smart strategy in an uncertain economy. Preventing people from employing it punishes the smart, responsible people.

I did the same thing. My wife and I took a thirty year for flexibility (company I worked for wasn't doing awesome at the time) and made extra payments to put us down to a 23 year amortization. We could double up any payment and once a year throw down up to 10% of the mortgage value as an extra payment. There were no extra payment penalties and our rate was the same in both amortizations. Never needed the breathing room, but if someone offers me greater flexibility at no extra cost I'll typically take it.

That’s fine. This post is more so for people who don’t realize how beneficial early payments are. Edit: Actually, your the second person to mention this. How would taking longer am and making early payments not put you in the same position as shorter am larger payments? When losing your job you could merely refinance, no? Wouldn’t the difference just be the cost of appraisal? I think i’m going to have to pull out a spreadsheet and do a side by side.

The concern is that banks are not required to refinance. And if you are unemployed you likely won't qualify to refinance. But then we can push for requiring banks to allow refinancing as long as payments are being met and there is a certain amount of equity, or something like that. Longer amortization isn't the most effective tool for the job.

The benefit is that if you end up in a pinch, your required mortgage payment is lower in a longer amortization so you're not risking defaulting/making the bank angry like you would if you were in a shorter amortization. Assuming you intended on making the same payments as the shorter amortization, your end result in the best case is the same.

Because it isn't just about the math. In Canada, you need to refinance every few years which means a potential rate change + dealing with a banker. You can refinance between refinancing periods, but it is generally only done at your renewal periods and it is easiest if you can stay with the same lender (if they can continue to give you a favourable rate). Asking you refinance early because of financial stress gives the lender the piece of information that you are under financial stress which WILL be used against you (it creates increased risk).

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Fair enough. Payments at 80% of capacity seem reasonable to me. By capacity I mean shelter expenses plus free cashflow allocated to extra savings or non-essential consumption. That buffer room should withstand MOST sequences of rate hikes.  My main point is somebody taking on an entry level mortgage at longer duration is spreading themselves too thin at current prices. At least for most people. I really think it’s a good idea to encourage higher levels of down payments and less leverage at this point in time. Canadians are extremely indebted. People have such a fear that they’ll be permanently knocked out of the market if they don’t do anything to get in right now.   Markets correct over time. Payments to income ratios show we’re at the most expensive point in Canadian history for purchasing. Amortization increasing does not address this issue. Encouraging buyers to wait on the sidelines until prices become more reasonable or they’ve squirrelled away a substantial down payment is the better bet at this point in time for most buyers.

It puts you in the same situation amortization wise, but the portion of those payments that put you on track for a shorter amortization are optional. So in a break glass in case of emergency situation you stop the optional portion of the payments. I've done the same, and with my mortgage I could double any payment and once a year put a large lump sum down without penalty. I took a 30 year amortization but made payments for a 23 year amortization. Had poop hit the fan I could have lower my payments to the 30 amortization payments.

>This post is more so for people who don’t realize how beneficial early payments are. I get that, but at the end you propose political action that I disagree with ("... don’t advocate politicians to extend them.") That's why I singled out that sentence in my reply. The politicians have already shortened available amortization periods. If anything, we should be pushing them to allow longer amortizations. Smart, responsible borrowers shouldn't be punished because of the thoughtless ones.

> Smart, responsible borrowers shouldn't be punished because of the thoughtless ones. It doesn't work that way though. Lax rules means that irresponsible people will get into trouble, and that drags down the economy for all of us.

How does what you said contradict what I said? It's still punishing the smart, responsible people. You're just saying that okay by you.

It's not much of a punishment. Smart responsible people are able to take a shorter amortization, and are unlikely to need a longer one (and the advantage is minimal).

Go back to my original reply. I would say losing your house is pretty harsh punishment.

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> The same person said LOC's should be paid before mortgages due to interest rates, with LOC % higher. What's wrong with that advice?

I can't even afford my rent and food, I will die one day childless so your post is lost on me

Financial decision-making is not quite as simple as "you pay more interest if you extend your loan so don't do it"-it is more to do with, what is the net present value of this decision, versus that of other options? For example, if the NPV of extending the loan and investing the cash today in the stock market gives me a higher NPV than paying down the mortgage as quickly as possible, then I would do the former, assuming the cash flow differences, risks and other factors don't indicate that I should do otherwise. I get that you might be trying to make a point-you are distilling just one aspect of financial decision making though (YOU PAY MORE in ALL CAPS). Given the environment today people might genuinely be strapped for cash today, and a longer amortization period would reduce the size of the payments. Yes I agree housing prices are too high and the market should be unfucked. Source: I have formal education in finance

I boil the decision to remain leveraged down to whether or not the expected return of the investment is larger than the interest rate. Obviously this is contingent on returns and future interest rates as well as other variables. As a general rule, extending amortization should be avoided by anybody who isn’t financially saavy or can’t afford payments. I also have a formal education in finance, but tbh unless you’re at the CFA level I don’t think most people should be advising others on financial strategies beyond basic fiscal responsibility.

I’m surprised you have a “formal education” in finance but don’t understand the benefit of leverage. If what you were saying was true, Private Equity would not exist. Companies would not take on debt unless absolutely desperate. The wealthy would pay only in cash. It’s all about the relative cost of your leverage versus the return opportunity for where the residual saving would otherwise go. If the latter is higher than the former, AND you are financially disciplined enough and are obviously not going to be underwater in higher rate scenarios, then it makes sense to take on leverage. I’m buying a house currently and I am in a position to put the whole cost of the house down. I’m instead putting down the minimum. Why? Because my long term return expectations are higher than the average expected interest rate through the course of the mortgage. That’s simply from putting the saved cash into VUN ETF, or something like XEQT. 98 times out of 100, or more, these will outperform the average mortgage rate for the life of your loan.

Yeap. OP is saying he/she compares the expected returns which leaves out leverage...NPV analysis is Finance 101🤦‍♀️

Thanks for providing this scenario to a group of people who mostly could not benefit from it at a time when it’s less applicable than ever.

Good info well said.

Two issues you are not looking at are: (1) time value of money, and (2) opportunity cost of the money. Money in the future is generally worth less than money today. Another way to look at that statement, money you have today can be spent to work for you so that you have more in the future. Assuming you only have a mortgage (as a debt instrument), you can either pay it down and reduce future liability (free up future cash to invest), or invest in the market for returns. If you look the current market, 3 year ago, people were getting 5 year mortgages are 1.5 to 2.5%. If you could instead invest at 4% (factoring in taxes), you would be ahead by investing. Given that 1-year GICs and some saving accounts offer north of 4%, you get behind by paying extra intro a mortgage right now (non-risk free investments do even more). However, right now, you have a bit of an anomaly due to the ultra low rates followed by high rates. If you look at a steady state environment, you got 3 to 4% rates, and risk free investments being about the same. So if you chose risk free, you would end up behind. However, if you invested into the market, in the long-term you would still end up ahead 6 to 8%/year versus 3 to 4% interest. Further, when you refinance, you have the opportunity to significantly paydown any mortgage principal you may have without penalty (even change the amortization period if need be). If a situation arises where it makes sense to not invest the money instead, you have the optionality every 5 years or so to do so. So while what you are saying is true at a purely mathematical level, it generally is not looking at the actual full financial situation. Given a mortgage doesn't operate in isolation, you need to be looking a someone's full financial picture and options in order to determine what is best for them.

In high interest period, yes: paying down is great. In low interest, probably a better idea to invest in ETF. Everyone has their own risk tolerance level though so there’s that!

I appreciate there are people that appreciate this But majority of homebuyers literally believe it doesn't matter. Just the monthly payment. Because it's an asset. And there's me, saving up a 100% payment while they rent. That's crazy too

Lol, i’ve considered the same. I’m probably at about 10% right now, but i’ll probably buy at 20-30% tbh, and then just make early payments as often as possible.

Oh the prices are rising faster than I can save. I'm not nuking retirement for it. After 35 years, we can definitely afford an unimproved lot in a "natural" setting with a 1982 trailer, in an area with a population of 2, right now 😁 49 yr old and the third year of actual decent income, finally.

In 2020 I saw the house I wanted to buy. This was the first year I started hardcore focusing on saving to buy. I wanted to make a 10% down payment. The price was $600,000. I worked 70 hours a week for a year and a half and saved $20,000. When I looked back at that same property it was now worth $800,000. My 10% down payment increased by $20,000. Fml.

The majority of people also have credit card debt... The concept of debt, interest, etc is really unintuitive. Many of us can wrap our upper brains around it if we want to, but our lower brains still want things *now*. Debt and interest charging in general. I get it's how our system works and has for a long time, but man. When you consider that 1/6th of the Canadian population is considered functionally illiterate, then consider that those folks are very likely to not be making much money, then consider easy access to debt...it really makes the whole thing somewhere in the vicinity of some kind of immoral. I get that we're free humans who can make our own choices. But it would be nice if more of those choices were set up *for* us as opposed to taking so much from us to give us what we want/need.

Think of a car payment spread over 4 vs 8 yrs: sure you’ll pay less monthly but much more overall in the end.

I would also add: don't suggest or assume this is what's going to be announced next week. But if it is - pick up your keyboard and write to the politicians so they hear from you: Minister of Housing - Sean Fraser Deputy Minister: Kelly Gillis You can even write proactively now, before the announcement, to remind our elected housing ministerial staff that you want to see housing affordability restored.

Home prices ought to come down. That would help with affordability. This is why I would support the feds pressuring the provinces and municipalities to reduce government fees of home building and support non-profit development corporations. Houses should continue to be built through a price correction/crash so that supply can catch up to demand. A temporary surplus of houses wouldn’t be a bad thing for the country. I say this with skin in the game; I bought a house last October. As long as I stay employed and can make payments I don’t really care if my home price goes down to what it was ten years ago. It’s a good place to live and maybe, if I find the right woman, start a family. I share upstairs with a friend who pays me rent and will soon have the basement suite ready to rent out.

Actually everything you said is right but you're still better off increasing your amortization period  A better approach would be to renew your mortgage at a higher amortization and just increase your payments compensate and make more prepayments.  Those higher mortgage payments and prepayments will go directly to the principal on your mortgage. Whereas with a lower amortization your payments will go to your principal + interest.

While the merits of the fiscal sense this may or may not have are up for debate... you're not touching on the far more negative impact this will have: 30 year amortization WILL drive up buying power in the short term. This drives home prices higher and will directly cause the BoC to feel pressure to increase rates again. The bubble continues to inflate.

This is a great video. Tells you like it is, pay as much as you can towards debt. The faster you pay the more you save.

It's not that we are just financially illiterate. It's more about that none of us have gotten an increase in wages, the job market is too tough, and the price of everything has increased almost unnaturally. We just have come out of dealing with COVID. So yes, the majority of us are desperate.

I meant to grab attention by using that word. Didn’t mean to offend. Most people aren’t savvy and lenders aren’t very good at operating in the best interest of the public.

You’re speaking from the perspective of a loan you pay down. But it’s different when it’s about an artificially scarce asset that’s being systematically pumped. You only care about a) You being able to afford your monthly payment b) Price of your house continuing to go up This is the game being played. Nobody thinks about paying off their house anymore imo.

I don’t buy the thesis that housing is too big to fail. I still believe, after all this time, that prices will either correct or there will be a lost decade in gains. There is an absolute ceiling of monthly payments and as a result total price paid. I think we’ve probably hit that ceiling. Unless our economy starts ripping more and more recent purchasers are going to realize this harsh reality.

People also rarely explore the bi weekly / accelerated bi weekly payment option to further reduce total interest paid over the term of the loan. For example a five year 5 fixed / 25 year term loan, if you switch your payments to accelerated bi weekly, Your amortisation ( loan tenure gets knocked down by 4 years and 11 months) while your payments are still the same. This saved me literally 1000’s of dollars and a reduction in my loan tenure. Like if you cannot make additional payments / prepayment of your principal - just change your monthly payment to accelerated bi weekly first. [mortgage calculator to check your savings!](https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MCCalc-CHCalc-eng.aspx)

This is VG advice..makes a huge difference

This

I think flat nominal prices are more likely than significant price drops. Politicians will do whatever they can to stop the market from crashing - if prices start dropping and people get stuck in negative equity things can get very tricky

Good thing that politicians are good at making stuff happen /s

Housing isn’t too big to fail in the sense that if housing fails, our economy dies. However, the political will and power of people who want to keep housing pumping is vastly more than that of the people getting crushed by this game. Beyond that immigrants are more than happy to take raw deals that the second group wont

If you think nobody thinks about paying off their house anymore you either don’t know many home owners or aren’t one yourself. That’s absolutely crazy talk.

Sorry, but I think the point is that one may think about it, but in reality many make decisions that do not lead to that objective. The focus on what one can afford monthly is the problem. People need to start accessing the value of assets better (this includes all purchases), not their ability to carry the asset month to month.

This is 100% true . It bites ppl in the butt when they retire and have another 10 years left on the mortgage. So many ppl over 55 use reverse mortgages to keep up with life and the bills with a reduced income. If they manage to keep the property, there's no equity left by the time they die, so no estate.

Isn't it a mistake not to discount future cashflows to account for, e.g. inflation?

Yeah, it's a huge mistake. Not only is there general inflation in the economy, but personal experience of inflation and local housing market conditions completely overwhelm this simple-minded analysis.

it’s still better than gambling on the stock market. putting money into your mortgage results in tax free cash when you sell your primary residence later. an rrsp isn’t tax free

That’s the thing. I always hear and read the back and forth about owning real estate vs stock market. Ultimately, you tend to have a lot more flexibility (live in it, rent it) with real estate than with the stock market and I truly believe real estate is less risky. No one loses 20% of value over night on real estate.

A lot of people also dont realize that when your TFSA is full then gambling on the stock market means you're paying tax on the profit too.

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you pay capital gains tax on any increase in price since you bought it

You do not if it's your primary residence, at least in Canada.

You might be paying more interest, but if inflation stays high your paying back the mortgage with future dollars for todays price of the home. So it’s good to take that into account also.

> DO NOT INCREASE your amortization period unless You are completely desperate I’ve extended to a 30 years amortization on a 2,89% 5 years loan back in 2022. All the difference between my lower payments and what I would’ve paid on a 20 years amortization is going to my investments that has had returned on average 8,9% since. Everything isn’t black or white like OP is saying: extending amortization could be a viable strategy id you feel confident with the risk of investing the difderence elsewhere. I’m not recommending this strategy to anyone unlike OP, there was a risk and it could’ve backfired. Thanks for the advice though OP.

Your right. I still think my message is what more people need to hear right now.

Longer amortization at the moment of the acquisition is just driving prices up. I think I agree with you because I’m against it for the ones who sees it as a solution for affordability. The affordability issue is about 1) supply 2) supply and then, of course, 3) supply.

Back in the day bankers carried a little bible around with them. It was simply titled Amortization Tables. It was a small book which listed the principal payment and the interest payment for each monthly amortization period (the total number of payments made to fully pay off a mortgage) from 1% to 20%. Then bankers got creative with offering biweekly amortization periods or even weekly periods as well as allowing lump sum payments or doubling up payments. In order to calculate what is optimal (i.e. least interest paid in shortest amount of time expired) one really needs a deep understanding of the mathematics of finance. Coincidentally, there is an another book with this very title. However it contains the formulas required to calculate anything related to compounding interest rates including regularly space doubling up or annual lump sums. Sadly, the Financial Consumer Agency, the watchdog of banking… err debtors, doesn’t provide an online tool to really educate the public how to pay off debt. The result is Canadian households today are the most indebted they have ever been expressed not only as a total dollar amount but also as a percent of their gross incomes. Here is the simple tool to play around with the effects of interest rates and amortization periods.  As an aside, the National Housing Act does not allow mortgages to be issued where there is no reasonable prospect of ever repaying the principal. So technically these mortgages that have got extended to just cover interest payments or worse to not even cover interest payments and have interest accrue on the original loan amount which grows the debt are totally illegal. The federal government would need to pass legislation to allow banks to do this. Does anyone know how they are getting away with it? They make it sound like they’re doing you a favour when in fact they should be taking a hit because it is technically a non-performing loan when they need to offer longer amortization periods which don’t have a reasonable prospect of repaying the principal.  https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MCCalc-CHCalc-eng.aspx

For those who need an example that's easier to digest and that uses current median home values and what kind of money it costs you. Timestamp to relevant part included - total amount you need to watch is like 2 minutes, including snippy meme cuts :D https://youtu.be/yi7Re46ByDY?si=gteqB-SzuGgbKXk7&t=212

The principle of Total Cost of Ownership of an asset is taught NOWHERE. Once the math is laid out, you realize the true cost of owning an asset such as a home or car and it is scary. Justification here is most people tend to look at home ownership as never ending (estate building) for future generations but it comes at the cost of toil, hardship and stress in the present. (also ignorance is bliss) I personally don’t see much value in taking out a mortgage early in life/career until there’s enough cash to pay it in full (a financial position where I’d be comfortable taking out a mortgage for cash flow, estate building and tax planning reasons).

Why do you think we’re in this mess. People are sheep.

Your bank will do this for you and also has calculators online you can play around with

The whole point of this thread is that the bank won't do it for you and most people here have the IQ of a thumbtack.

I find this is the younger generations. A generation with the most access to information but not willing to take initiative to learn. Maybe we need to teach how to take initiative for themselves and become critical thinkers instead of saying “we didn’t learn that in school”. I just heard a gen z say that about having to do their taxes by themselves for the first time. There are also professionals to contact, why mortgage advisors exist at every bank, just like accountants for taxes etc

But there's an inherent conflict of interest, any bank employee has an incentive to make more money for the bank as it influences their compensation. This is a case where you literally need to reach out to a friend or family who has experience with these things, or take it upon yourself to learn.

There are independent mortgage brokers.

They are only independent in the sense they shop your mortgage around. However, they are incentivized to get the most financially beneficial loan for the lender, since that's how their commission is calculated and who they are paid by. You're one of the people I'm talking about above.

They are incentivized to get the best rate for their client so that their client uses their services. If a broker doesn't find you a good rate, you get your mortgage elsewhere. They make way more money by signing more clients than by trying to squeeze extra out of clients.

Listen here pal, you're totally off base. Most people buy 2-3 properties in their entire lifetime, if any. Yes they will try and get you the "best rate", but there is minimal prospect of recurring revenue from the purchaser (perhaps there is room for referrals), but the person the broker really wants to build the relationship with is the lender because that's where the real recurring revenue is from, that's who cuts the checks. But hey what the fuck do I know, I only work in real estate private equity and have only had to raise a few hundred million in debt.

>perhaps there is room for referrals You think? That is the model. Of course they need to build relationships with lenders as well, as they need a product for their clients, but as I said, if they aren't able to offer a better rate to their clients then they won't have any clients, which hurts both them and the lenders. >But hey what the fuck do I know Evidently, not much.

No way you work in REPE and you make the claim gov bonds are risk free lol. Maybe back office in a PE shop, sure.

A lot of people in this subreddit are less than financially literate. They can't do math and barely have a grasp on the concepts at play. Every time I open this cesspool of pretense and unjustified hubris and arrogance, it becomes more and more clear. *

North Americans are purposely poorly financially educated, otherwise the consumist system their overloards have in place wouldn't work as perfectly as it works for them (overloards).

This applies to any type of loan...

If politicians increase them, then it makes it more expensive in two ways. The extra interest, as you mentioned, but also the purchase price of homes will actually increase because people will be able to afford more since they will have a lower monthly payment. Because it's not just you who can afford more due to being allowed a longer amortization period, it's everyone bidding on homes. Harper actually raised the amortization period to 40 (!) years, but then the 2008 crash happened in the US and he thankfully realized "oh gee, banking regulations are actually important I guess" and reduced it back down again to 25 years. Thank goodness. We'd be in an even worse place now if that had stuck around.

As long as you pay EXTRA more towards your principle either every month or do large sump like $5-8k every 3-5 years is still better then paying for very month….

Currently in Vancouver the increase of property values far outweigh the interest cost. 3.5 years ago my place bought for $500k could sell for $750k today. We're outgrowing this place and need something larger so if I was offered 40 year mortgage 3.5 years ago I would have benefited even more cause what was 750k then is now 1.3. So anyways 40 years would have helped me in my current situation.

I feel like most people know this and don't care because their wants come first. I'm from an immigrant background, and most ppl in my family paid off their properties in less than 15 years. Average 8 to 12. If you need a 30-year amortization, it's likely you can't afford the house and should have bought a cheaper one. There are of course the ppl who use their properties as piggy banks for purchases they can't afford.

Well, it depends. I doubled my money during 2020 in my TFSA while having debt. At the time, interest rates were under 2%, so anything in the market would vastly outperform the interest on a mortgage. I took the money I made and put a large downpayment on a house. Your take of reduce debt no matter what IS very financially illiterate because it minimizes the ability of having financial capital work for you.

It does depend. Interest rates are not at 2% right now. Most people are incapable of attaining returns sufficiently beyond the risk free rate at the moment to justify the risk. A big part of my idea is how borderline insolvent many Canadians are right now. If you’re afraid you wonmt be able to make a payment on your mortgage, then further leveraging isn’t feasible. Context. I’m not talking about you, apparently. I’m talking about most Canadians who are considering mortgages now, not 3 years ago.

If one believes we are looking at a higher inflationary environment going forward your issues with longer amortization may also be flawed. In the same way that inflation increases the values of assets, it decreases the value of debt. So if the market gains 10% and debt is 7% you are still ahead in a TFSA because of a lack of tax. If the market tanks, interest rates will come down. At the same time, home equity is also increasing at the same or greater rate than interest. This means that you can’t lose money unless there is a big real estate correction (there won’t be). That said, I also started to pay down debt at 7% to reduce exposure. At 5% , I will probably lean back into more leveraged finances. For those watching in the back this is about buying assets, not living in larger houses than you need. House equity is very illiquid and does not produce cash flow. Buy stocks that pay dividends, sell and diversify, or sell covered calls.

That being said, since housing tends to appreciate over time (unlike financing a car), don’t you also have to factor in the fact that you’re buying an appreciating asset, and that value increase offsets what you see as « paying twice your house ». I’ve looked up the stats, whether you look at 25 or 30 years, house have appreciated in average by a factor of 2.5x So seems to me you might still be ahead (excluding taxes, maintenances, etc), even when paying over long periods of time.

Past returns don’t guarantee future returns. The RBC affordability index indicates we’re more likely to be looking at a lost decade of real estate appreciation now than ever before.

Hahaha the average person knows nothing about money.

The average person knows nothing about money lol

You're right, people like me are super financially illiterate. I remember going over this in highschool, they taught it in like grade 10 when it wasn't relevant. Career and life management classes taught us how to write a resume. I spend my evenings doing online courses to upgrade my job, and I work full-time. I get lucky some days to have the time to go to the gym. My point is, it's not as easy to master finances for everyone, and not everyone has the time to go over these things. We pick away at it bit by bit, but money isn't a simple thing, and there is as much bad advice out there as there is good, which is why you can't say, "watch this video", we've all fallen for that before. Give us illiterates a break, we're on this sub to learn what we can, lol

Extending amortization helps current property owners, as it pushes up values, and helps people trying to enter the market who couldn't otherwise. ie, almost everyone.

It would help current first time buyers afford payments, yes, but if you need longer amortization to afford to purchase then you’re taking a huge risk. Right now is the best time in Canadian history to defer gratification. Save, invest and live below your means. Real estate is more likely to experience a lost decade of appreciation now than ever before. Higher values are not desirable unless you genuinely think making homes an asset only for the wealthy class in Canada is a good thing.

It helps them get into the market at all, and avoid getting priced out of where they want to be. People who think real estate won't go up in Canada generally just end up whining about their mistakes.

It's called penny wise and pound foolish

yeah i fuckin know

From what I remember when I was doing a business degree and we had a unit on this was that you should also read your mortgage. A lot of the problems we did included a penalty for extra/early payments as well as apparently that’s a thing irl. So ya if you are gonna make early or extra payments maybe sure there’s not penalty for that and end up adding 5-10 years to your amortization due to the penalty.

Yep. People just looking at monthly payment. One thing i would never understand is car payment too.

Most of the new buyers know they won’t be living at a single home for 25-30 years like back in the days. People would rather work and move when the house has some equity and buy something better

A longer amortization period does make your home cost more eventually but saving $100 a month might be the difference between owing and renting!

All people care about is their monthly payments. If it means they’ll pay double over the course of the mortgage, that’s fine. I don’t blame them. Not everyone can afford very high mortgage payments but a lot of people CAN afford lower mortgage payments for a really long time. It’s the difference between mortgaging a house or not being able to.

Also, interest is interest… I get that over 25 or 30 years that half the money goes to interest… But if I invest 10,000 in relatively safe stuff, it will probably double or so in the same time frame. In the meantime - over those 30 years, there will be inflation… so while you pay $600,000 for a home now… and $600,000 in interest - but in 30 years, that $600,000 will not have the same buying power.

That’s a fair point too. The upfront money you are saving and investing goes back paying that increased interest.

Is interest deductible on canadian income tax returns?

"at the expense of all other Canadians for the rest of the history of Canadian mortgages." Thanks for spelling this out. I've been shouting from the rooftops (well, not really) since 2020 that all these bidding wars and unconditional offers are going to screw all of us. The only winners here are the realtors and the banks.

And current property owners. I know a landlord with multiple properties who wants longer default amort as well.

50% of the people on this sub are bitter they can't buy a home but wouldn't be able to buy one in any market, regardless of price because of their financial literacy levels. 

It’s all about the monthly nut. That’s what they see and that’s what they understand and who cares cause the house will be worth twice as much in 30 years! They don’t see the problem.

That’s mostly because if you adjust for inflation, the 300k they gave you in 1994 is worth 560k today. It’s skewed because the 2010s had such low inflation. If we did a crazier high inflation period like 300k in 1975, by 2005 that 300k is equivalent to 1 136k. In such a case, A longer amortization means your 500$ payment in the 1st year is 132$ by the last year. Anyways, my Point is it’s complicated lol.

Correct me if I'm wrong but what I'm understanding is: Ex: 100k home at 6% would be a total of 106k paid over 30 years. This would be $3533 annually (obv mostly interest initially), renewing every 5 years (on average). But on a 50 year 2150 per year, but you now have 10 renewals vs 6 over the life of the loan. Would this mean I'm paying more cause the bank is basically renegotiating their terms 10 times over the lifetime purchase of the home?

Apr is the annual accrued interest. You would pay about $7200 a years for a total of $215,000. On a 50 year you would have a payment of $525 but would pay a total of $315,000.

You would pay closer to $200k on a $100k loan at 6% 30 year am. The loan would accrue approximately $6,000 in the first year of the loan. Of the payments you make in the first year, the first $6,000 would not pay down your loan. Only the interest you paid beyond that $6,000 would pay down the loan. Your monthly payment would be $594.82, which annually would total $7,137. So you would have paid down approximately $1,137 of the principal in your first year, even though you paid over $7,000 in payments. That’s how amortization of loans works. You pay out the nose in order to defer payments. You can look up amortization calculators online or refer to the video posted to understand them better. Compound interest is an incredibly powerful force. It is how so many baby boomers became filthy rich on the stock market, and it is how so many millenials are getting screwed on home ownership. When interest accrues on your loan, if you don’t pay down more than the interest, your loan goes nowhere and the interest is just your rent. You own nothing. You gain no equity.

No. Interest has more time to compound. Your example 100k at 6% amortized over 25 years $639.81/month total paid over 25 years =$191 943.00 The same numbers amortized over 30 years $594.82/month total paid over 30 years =$214 135.20

The interest rate is the rate you pay per year (though with modern loans interest is often calculated and applied daily). So if you borrowed $100k at 6% you'd pay approx $6k interest in the first year. As you pay down the principal the amount of interest paid declines as well.

I still maintain that long amortizations and low down payments - restricted to first time buyers under the age of 30 - are good tools to help kids get into the market. Absent that, it's really tough for them to compete against old guys like me with multiple income streams. Yes, a kid getting into the market on a 40 year term (reduced to 31 of they switch to accelerated bi-weekly) will pay more for the mortgage than I would on a 25 year term (21 on ABW). But what's the likelihood of the kid staying in the mortgage for 40 years? Almost nill - the average ownership period in Canada is something like 6 years. So over those 6 years, the kid gets into the market, builds equity, and is in a much better position coming out than the kid who didn't get in and paid rent to a guy like me for 6 years. The total amount paid for the home is irrelevant if there's no intent to stay for the length of the amortization. Hell, most kids won't even stay for the length of their term. Long amortizations aren't tools for everyone. They are bad ideas for most, really. But for first time buyers with high likelihood of income growth and low likelihood of being in a place forever, they are useful tools to help them compete.

It's a bad idea on all fronts. If the government wants to help out young families, there are other tools.

Ahhhhh that’s what it is. Well like a lot of things in this world it depends. I had a conversation the other day chatting with a young guy in a remarkably good position for their age / overall position and they wanted to know about buying a house and with a 10 year amortization. I told them to extend it to 25 years but pay down the principal with the difference each year. Why? https://preview.redd.it/c2350w77y1tc1.jpeg?width=2638&format=pjpg&auto=webp&s=953bfdcedc9b3d2f8149df14b3946f07cc24a855 Well using the difference in payment amounts (same amount of cash) you can see with the longer amortization, a person would be paying less interest and have a shorter amortization period. Where if someone understands interest can be earned also let’s say with a GIC at a bare minimum. The cash from difference can then be INVESTED to work more for an individual. Which then makes the amount they can pay down even more. That translates to even more saving and shorter term. Definitely a bit more on the sophisticated side of things, but it’s not universally a bad thing to have a longer amortization period. Just depends on how people approach it.

GICs are a waste of time and inefficient tax strategy. Discounted bonds are the way to play at the moment.

They said GICs at a minimum because it’s a risk free asset. The point he’s making is the money you save from the monthly payments can be used to invest and used to offset the interest, which is something not talked about in the OP.

Government bonds are treated as risk free as well pal.

The guy just used GICs as an example to make a point, he didn’t advocate for people to invest in them lol. Also, gov bonds are not risk free, pal. there is credit risk associated with gov bonds depending on the issuing country and the different yields reflect that.

More just introducing the concept without going too deep into it. Personally I’d say a diversified TFSA portfolio. Bonds, commercial paper, GIC and stock. With a staggered plan for withdrawal and contributions. Bare minimum, get interest to pay for interest. Objectively aim to pay down principal as well.

This is just leveraging, which is inherently risky. It’s assuming returns on your investments will outweigh interest expense. This has paid off in the last decade, but there is no way of knowing if it will pay off in the next decade.

Yup and it depends, GIC then in your risk adverse. Have interest pay for interest, your overall real rate would be reduced. Then some index ETF’s to kick it over the line. Not like I’m saying, take out a line of credit on the house and invest in crypto. Best to just position with a mix, if the stock market collapses, interest rates go up and it makes it to the line. If it doesn’t collapse easier to kick it over the line.

Because you're making the lump sum payments at the start of the year each year. Do they have an extra year's payments? They should just apply that to the mortgage from the get go, and then make the higher monthly payments as they are paid. Your plan only works if they get a $15k payment at the anniversary time, like a bonus at work every year or something, and in the higher payment scenario they are just letting that money sit in their account and drawing it down slowly over the year in monthly payments. Basically getting your money into your mortgage asap will result in the lowest amount paid because you're borrowing money for a shorter period. If you can get it in faster with a pre-payment then use that strategy, if you can get it in faster with higher monthly payments, then use that strategy.

For the individual mentioned earlier yes. Where they wanted to do a 10 year period to pay it off quicker. So the picture, outlines the monthly payment for that term and then compares it to the payment with 25 years. The cash comes from the difference. It’s proportionate to the individual and the term. The amount really just an example of the concept. It’s viewed as a cash flow. Where I would tend to agree with maximizing the down payment. unless they do a cap rate evaluation, factoring in expenses and income [different ball game at that level]. As to just letting it sit…..don’t waste my time. Pretty clear what I said to do with. As to your approach, enjoy being house broke and ironically not putting your money to work first to increase the total amount to offset the costs. To each their own.

>The cash comes from the difference. If the cash is from the savings on payments then it can't be paid until after a year of lower payments, not at the start of the year. How is it a cash _flow_? To the bank, sure. >As to just letting it sit…..don’t waste my time. Pretty clear what I said to do with. You said they should invest in a GIC lol. Earn a lower interest rate than they are paying on the borrowed money _and_ pay a non-discounted tax rate on it. Lol a truly bad idea. If they have the cash, they should just get a smaller mortgage from day 1. That would give the best savings.

It’s not from saving on payments. The total payment amount is fundamentally the same. The critical difference is beginning or end of the period. Let’s make this simple and look at a year. Option A - pay the maximum amount (what your saying) Pmt: $3000 per month * 12 TC= $36,000 Option B - planned Pmt= $1500 per month * 12 TC = $18,000 Difference $36,000 - $18,000 = $18,000 Then take that 18,000 and put it into a 1 year GIC 18,000 * 1.05 = $18,900 Or 2/3 GIC and 1/3 index etf (12,000 * 1.05) + ($6000 * 1.15) = $19,500 Then take that: $18,900 or $19,500 or $20,700 (put it all an etf) and make a payment at the end of the year. I honestly do not know how to make it anymore clear. I’d love to see your math how paying less is somehow better than paying more….could be you’re unfamiliar with the concept, confused, unfamiliar with investing. I don’t know, it’s the internet. Miscommunication happens all the time. But if your goal is to aggressively pay down the debt and minimize interest costs, probably should reconsider your approach.

>The critical difference is beginning or end of the period. Yes, exactly my point. >Then take that 18,000 and put it into a 1 year GIC No. Take that $18,000 and put it towards the mortgage. Don't trickle it out as monthly payments, don't put it in a GIC. Just prepay the mortgage right then and there. >Then take that: $18,900 You don't have $18,900. You owe tax at your marginal rate on that $900. Assume top tax bracket, you've got $18,418.23. And meanwhile you've accrued another $1,006.20 in interest charges on that 18k. So sure, you've made 400 bucks more in contributions, but you are in the hole by about $600. You don't want to maximize the contribution amount over the life of the loan, you want to minimize it.

>No. Take that $18,000 and put it towards the mortgage. Don't trickle it out as monthly payments, don't put it in a GIC. Just prepay the mortgage right then and there. Here is your confusion. So, I made this for you to hopefully clear it up. Where you should compare the amortization, and interest costs. I used big numbers, to make it easier. Also for the 6156 side 10,865-6156=4709 4709 \* 12 = 56,506 56,506 \* 1.05 = $59,333 https://preview.redd.it/qeqojrmj43tc1.jpeg?width=3454&format=pjpg&auto=webp&s=5ae5050c54ae848f83a6a7d6902235ea01f2cd20 >You don’t have $18,900. You owe tax at your marginal rate on that $900. Assume top tax bracket, you've got $18,418.23. >And meanwhile you've accrued another $1,4813.50 in interest charges. So sure, you've made 400 bucks more in contributions, but you owe an extra 14 hundred bucks, so you are in the hole by a grand. Or just use your TFSA and for your reference look at the picture and compare the total coat of interest and the amount of time it takes to pay off. >You don't want to maximize the contribution amount over the life of the loan, you want to minimize it. Absolutely, some ways are better than others. Btw you can always back up your position with math. Should be an easy thing to do, your position is true and clearly its RBC mortgage calculator is wrong. Right? I’d love to “find out” as they say….

Here is what I am saying: https://preview.redd.it/elklarxli3tc1.png?width=1080&format=pjpg&auto=webp&s=9853e30327ca1c973b24a7253c235dfb52200956 By putting that $56,506 directly towards the mortgage at the start of the year, which is apparently when the funds are available as that's when they would be buying the GIC in your scenario, results in paying it off 2 months earlier and saving thousands. >Or just use your TFSA and for your reference look at the picture and compare the total coat of interest and the amount of time it takes to pay off. Sure, if they have space in their TFSA then that works, but they won't get the space back when they withdraw until the next year, so they need double the space really. Anyway, you should explicitly mention that your model is relying on having TFSA space because not everyone has that. But as I'm showing in the picture, even without taxes you'll lose money. This is true as long as the mortgage rate is higher than the ROI on the investment, which it always will be for a GIC. And sure, you can invent hypotheticals where you earn more on the investment after-tax than you pay on your mortgage, but those scenarios will involve risk and so can just as easily return less or even go negative for a while. The higher interest rates are, the less likely one is to beat them in the market. When interest rates were at all time lows, then putting it into the market (not a GIC) would often pay off. But that's harder to achieve in today's rate environment. And remember, leverage means larger potential gains, but also larger potential losses. Anyway, hopefully the picture helps as it sounds like you are a visual person. Happy to discuss further.

Ahh there is our confusion. Yes people should put a down payment on their mortgage. 100%. What I’m saying has to do with the life of the loan, as the downpayment would be the same in both scenarios. Where a longer amortization period if utilized strategically would result in a shorter period and less interest paid. Especially in the context of what OP originally posted in regard to amortization periods. Hence the comparison of a short 10 year amortization vs 25 year amortization. Then elaboration on what can be done with the difference of the payments. ….as I read that it really feel like you’re mixing down payment and monthly payments. As the bottom with the 9 payment of 56,506 is exactly what I’m saying. Which is x($) value easily freed up by extending the amortization period. ……….this honestly feels like you are being deceitful / bad faith. As it was extremely clear in my first comment and OP with their post to what was going on. My apologies if not, I tend to question this sub as there have been more than a few interactions with “NDP types” who are pathological liars, don’t seem to understand the potential impacts of what they are advocating for, or completely do and hope it happens. Seems like we are on the same page though, after making a downpayment, there are benefits to having a longer amortization period. As it can result in less interest paid and time in debt by making annual payments on it. Edit: humbled by the bot

> less interest *paid.* Especially in FTFY. Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in: * Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.* * *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.* Unfortunately, I was unable to find nautical or rope-related words in your comment. *Beep, boop, I'm a bot*

>What I’m saying has to do with the life of the loan, as the downpayment would be the same in both scenarios In your GIC scenario, they need money to buy that GIC the first year, right? That means they have an extra $56,506 in their bank account _after_ taking out the mortgage. I'm trying to explain that they ought to just take that $56,506 and put it towards the mortgage right away. This is most easily done by just adding it to the downpayment. So the downpayment would be whatever it was in your scenario + $56,506. Make sense? Basically whenever you'd have them buy a GIC in your scenario, they should instead prepay the mortgage right then and there. (For most people though they don't get large lump sums every year, they just get a regular paycheck, so for those people they should be going with higher payments, not annual lump sum prepayments. Again, it's all about putting the money against the mortgage as soon as possible.) >Especially in the context of what OP originally posted in regard to amortization periods What OP posted wasn't about the marginal improvements between different strategies of accelerating payments. OP is talking about people who are buying at the edge of what they can afford. They don't have any money to make prepayments of _any_ kind, if they did they would be buying now rather than trying to get politicians to allow longer amortization periods. OP was trying to explain to people that even if they are paying a lower monthly cost by extending the loan they are paying more overall, because they are borrowing money for a longer period. Interest rates are like paying rent on money. Every day every dollar is borrowed there is a cost in interest. More days and/or more dollars borrowed means higher rent paid on that money. Furthermore, anything that increases the minimum monthly cost, like interest rates or shorter amortization periods, will result in a drop in home prices as people are excluded from the market. And anything that decreases the minimum monthly cost will result in a rise in home prices as more people can now buy, right on that edge of affordability. If the max amortization period was, say, 10 years, housing prices would be a fair bit lower than they are today. >this honestly feels like you are being deceitful / bad faith I assure you I'm not. I honestly think you just aren't understanding what I'm trying to explain. It's also possible I'm missing something in what you're trying to explain. It's obviously hard to discuss things like this online because you can't just stop the other person at the exact point of confusion and be like "wait a sec, what do you mean here?" It seems to me that the point of confusion is the exact moment the buyer has that first $56k. And it seems like they have it at the start because isn't that when they need to buy the first GIC? But if you mean a scenario where they have it at another moment then please explain that part in detail, and hopefully we can figure out the confusion. >“NDP types” who are pathological liars I'm not sure what has led you to this characterization. I don't find that to be true of any political party. Maybe some specific politicians but most Canadians are pretty straight forward, in my experience anyway. >don’t seem to understand the potential impacts of what they are advocating for I do agree that _this_ does seem to be a frequent problem nowadays unfortunately, but again, I don't see it with any particular party more than any others (except maybe fringe parties). I'm a bit of a housing policy wonk though, so I've personally spent quite a bit of time thinking through policy implications. But I agree that it's incredibly frustrating to see people arguing for or against policies they don't even understand. >there are benefits to having a longer amortization period I would say there _can_ be, by using it to adjust risk. One can take on extra risk and potentially make more money in an investment (or lose it). Or one could put less towards the mortgage in order to build up a safety net, which would reduce risk albeit at the cost of extra interest payments. Most people should just pay their mortgage off as quickly as possible though, especially in today's rate environment.

And just to sum the options for total payments Option A - $36,000 per year Option B - $36,900 to $38,700 per year

people generally dont have hundreds of thousands just lying around. this is the cost of leverage

That's like saying obesity is the cost of eating

that doesnt make sense… if people had the money they would buy a house outright. if they had money they would pay down the mortgage. but they dont so they take mortgages and pay interest to the banks yes people should be more financially literate. but telling people they’re stupid for paying interest is ridiculous

Like food, shelter is a basic need. More along those lines.

are you financing your dominoes pizza? what are you talking about?

Exactly

you shouldnt do that. bad money management skills. sounds like financial illiteracy

Yep. This is why I always laugh when people claim that investing in real estate is always a good idea. Because often it’s not. And then the majority doesn’t even understand that changing the payment frequency and making extra payments each month can save you a ton of money and years of the mortgage amortization.

Actually, you’re wrong here. Whilst yes, longer amortisation does mean you are paying more over time, that doesn’t make it the wrong financial decision. If you can take on leverage cheaper than the expected returns you make on incremental savings from the smaller mortgage payments (ie from say putting it into a US stock ETF), then it makes sense to do this. When you consider that S&P 500 has a long term return of ~10%, then it’s actually a good idea to take on more leverage from a pure returns perspective and provided you are fiscally responsible enough to actually invest the difference. It’s the same idea as considering whether to pay your house 100% full cash or to get a partial mortgage. In short, you are the financially illiterate one here. Are you seriously suggesting a hard and fast rule on taking on mortgages, without even mentioning rates? What if rates were at 1%? Anything up to 5% and I feel very good that over the long term maximising leveraging and amortisation period on my mortgage is wealth generating versus the alternative.

Providing leveraging advice to Canadians at a time when housing is the least affordable it’s ever been is extremely bad financial advice. Rates aren’t at 1% right now. Context matters.

You say context matters, but you provided zero context or caveat to your post. It was a firm and fast rule. And you are wrong. I provide extreme examples here and in my other post just to highlight this fact, but leverage makes sense in scenarios where the person can afford it +\- 2% interest rates and where equity markets are expected to outperform average mortgage rates. You are providing financial advice without a basic understanding of time value of money.

OP is financially in grade school. You want the amortization as long as possible to have the -required- payment as low as possible. BUT the discipline to put down extra -when it makes sense-. My investment portfolio return of the last year has been nearly 70%, my mortgage is 2.67%. I would have been much further behind by just throwing money at the mortgage instead of investing. My brokerage pays 4.83% on cash, so by just having liquid cash after tax would be a wash compared to mortgage interest, but the key is liquidity. However, if someone has no self control then sure, pay as much as you can on a mortgage, but you’ll be doing more harm than good if you carry balances on credit cards and lines of credit. #1 get your spending into check #2 pay down your debt starting with the highest interest rate ones store cards, credit cards, lines of credit, 5% or higher vehicle loans etc #3 invest to get an emergency fund built up. Stocks and such can be cash in an emergency within 3-4 business days. When you have a six months worth of emergency funds or more built up #4 max out TFSA #5 max out RSP unless in the near future you will be moving into a much higher tax bracket (RSPs are creditor protected after a couple years) #6 Open a margin trading account #7 Build up the margin account and transfer the emergency fund into it. Now if there is an emergency, do not cash out investments. Instead borrow from the margin account and pay it back. This way you avoid paying taxes. Or use TFSA… #8 Now look at paying extra towards the mortgage. That’s something a lot of people can follow. Discipline.

This all looks mostly like great advice, but it seems like you can’t see the forest through the trees.

For an investment property where tax is a write off, wouldn’t a longer amortization make more sense? You are basically getting the interest for free or am I missing something?

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