Why Canadians Shouldn’t Covet 50-Year Mortgages: The Hidden Costs of Long-Term Loans
Why Canadians Shouldn’t Envy American 50-Year Mortgages
We see discussions in the U.S. about mortgages that last 50 years. People mention long terms and low monthly payments. Experts warn that long terms come with high costs.
The American Proposal: 50-Year Fixed-Rate Mortgages
U.S. President Donald Trump raised the idea of 50-year fixed-rate mortgages. He links long terms with lower monthly payments. He hopes that stretching payments over 50 years will ease home buying. This plan stands apart from Canada’s way of doing things. Canadian borrowers choose short-term rates. They often pick five-year commitments even when the total payment schedule runs for 25 to 30 years. In Canada, borrowers do not lock rates for decades. They face many rate renewals as market conditions change.
The Canadian Experience: Shorter Terms, Recurring Renewal Shock
Today, 1.8 million Canadian homeowners get close to a mortgage renewal. Many see higher rates than they had in 2021. Economists note that higher rates limit extra spending. They add that strict lending standards help avoid mass mortgage failure.
Many Canadians choose five-year fixed terms. They feel that short terms offer safe, stable choices in risky rate times. Some pick 10-year terms, yet these do not win favor because longer terms get higher rates.
The Costs of Long-Term Stability
Locking a rate for many years seems safe. But long terms also bring high fees. Janet Gao, from Georgetown University, explains that low fixed rates often cost large fees at the start. She adds that 30- and 50-year mortgages in the U.S. have higher rates than Canadian five-year fixed ones.
Borrowers risk steep penalties if they break a long-term mortgage early. Divorce or sudden changes may force a borrower to pay hard fees on the remaining years. Shawn Stillman, CPA and mortgage broker, says that Canadian banks prefer shorter terms. He links this to Canadian banks using five-year bonds. The banks also must manage higher risk in long terms.
Not a "Free Lunch"
Longer terms bring relief in monthly payments. Yet they do not trim the total cost of borrowing. Gao tells us, "It’s not a free lunch." U.S. banks build ways to handle long-term risks. Borrowers may miss the fact that total interest over 50 years is much higher. Upfront fees add to a long mortgage’s overall cost.
Conclusion
The idea of a 50-year mortgage may seem like a fix for housing costs in the U.S. However, Canadians must study the risks and costs before wishing for the same product. Extended rate security also means higher rates, more fees, and costly penalties.
For now, Canadian short and frequent mortgage terms offer flexibility even with some uncertainty. Homeowners and buyers must check their money matters carefully. They should not assume that a longer mortgage makes housing easier or cheaper.
This article is based on insights from Garry Marr’s report in the Financial Post. It shows key differences between Canadian and U.S. mortgage views and explains why Canadians might not gain from longer mortgage terms.
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