Canadians have been extremely diligent in paying off their mortgages as quickly as possible, generally in about two-thirds of the original intended time period.
In a recent report by the Canadian Association of Accredited Mortgage Professionals (CAAMP) for mortgages completed from 2010 to 2013, it was found that the actual average amortization length was 11.7 years, compared to an original average term of 17.9 years.
Despite the propensity of Canadians to be cautious in their spending habits, over the same period of time the federal government has reduced amortization periods from 40 years to 25 years.
CAAMP argues that Ottawa's changes have caused a 15-per-cent decline in new-home starts, which in turn has had a negative impact on jobs and the economy. They also argue that the resale business has suffered from this reduced amortization period.
The association's primary concern is with the first-time buyer who, given all of the other costs associated with buying that first home, is having trouble getting into the market. Their recommendation is to allow first-time buyers a 30-year period if they financially qualify for 25.
Such a move would permit a better cash-flow situation for the buyers over the length of the payment period. As first-time buyers complete renovations, purchase furniture and appliances and cover other expenses associated with owning a first home, they could then concentrate on paying off their mortgages more quickly.
Surveys over the past two years have shown that 48 per cent of Canadians intend to buy a property in the next five years. New-home buyers may concentrate on amenities for the home over that initial mortgage period, so any change to rates after the current period concludes will not result in any financial hardship.
The Canadian Home Builders Association shares the concerns of CAAMP regarding the reduced amortization period. The CHBA feels that the proven performance of Canadians in managing debt, the superiority of our financial institutions in qualifying buyers and the traditionally low default rate of buyers justifies a review of the current amortization period with an eye towards reinstatement of the 30-year mortgage within the next few years.
Mike Moore is president of the Manitoba Home Builders' Association.