In Canada, as elsewhere, there has recently been a spectacular rise in interest rates for mortgages. With sometimes worrying consequences: some borrowers are suddenly forced to repay their loan over 70, 80, or even 90 years. Explanations.
Canadians trapped in flexible mortgages
In Canada, it is possible to take out variable rate loans, which allow you to keep the same monthly payment, by adjusting the duration according to the evolution of the rates. When interest rates rise, the duration of the loan is therefore mechanically extended. The borrower therefore sees no difference in their monthly payments, but the repayment term is increased tenfold, and years are spent paying the interest rates, rather than the amount borrowed. You can then go from a 25-year loan to a much longer loan.
According to local media The Hamilton Spectator, this has already given rise to problematic situations, with borrowers who see the duration of their loans lengthen to 70, 80, even 90 years. This change is made automatically, according to the signed loan contract. According to local brokers, the situation is unprecedented: such long repayment periods have never been applied.
” It is a problem. Even if they like to keep the same payment amounts for their credit, it is still adjusted, because they now repay their principal debt much less, and they find themselves more in debt. »
👉 To read on the same subject – How to invest in real estate thanks to the blockchain in 2023?
Buy crypto on eToro
A risk that can happen in France?
Canada’s financial watchdog stated in its annual report that the real estate industry posed a major risk to financial stability :
” Extended amortizations present high risks, including greater persistence of borrowing costs (which extends the term of debt for borrowers), as well as higher risks of loss for lenders. »
This shows the limits of a system largely based on borrowing, when faced with sudden and substantial increases in interest rates. In France, where the duration of a mortgage is set at a maximum of 25 years – but can be adjusted thereafter – the system is not the same. But some calls have already been heard to extend the duration of home loans. Last month, the vice-president of the Île-de-France region, Jean-Philippe Dugoin-Clément, was considering longer repayment periods:
“When you build a house, it is there for 50 years, 80 years, a century, if not more. What then makes it necessary to take out a loan for 20 or 25 years? We could very well have a loan over 50 or 60 years which relates in whole or in part to the property, and which would be resold with it.»
The Banque de France, however, sounded the alarm in a report published last March, pointing out the risks of over-indebtedness if access to credit is relaxed, and repayment periods extended:
“It would be the worst time to do so, when French household debt, at 66% of GDP, is already higher than the rest of the euro zone and to all our great neighbours.»
The real estate sector should therefore continue to experience a major slowdown in France, for as long as rates are high.
👉 Listen to this article and all other crypto news on Spotify
Confused and overwhelmed by cryptocurrencies? 🤔
Spot opportunities and make informed investment decisions 🔎
Source: The Hamilton Spectator, Bank of France
Newsletter 🍞
Receive a summary of crypto news every Monday by email 👌
What you need to know about affiliate links. This page may feature investment-related assets, products or services. Some links in this article may be affiliated. This means that if you buy a product or register on a site from this article, our partner pays us a commission. This allows us to continue to offer you original and useful content. There is no impact on you and you can even get a bonus by using our links.
Investments in cryptocurrencies are risky. Cryptoast is not responsible for the quality of the products or services presented on this page and could not be held responsible, directly or indirectly, for any damage or loss caused following the use of a good or service highlighted in this article. Investments related to crypto-assets are risky in nature, readers should do their own research before taking any action and only invest within the limits of their financial capabilities. This article does not constitute investment advice.
AMF recommendations. There is no guaranteed high return, a product with high return potential involves high risk. This risk-taking must be in line with your project, your investment horizon and your ability to lose part of this savings. Do not invest if you are not ready to lose all or part of your capital.
To go further, read our Financial Situation, Media Transparency and Legal Notices pages.
Journalist at Cryptoast, I fell into the pot of cryptocurrencies a few years ago. I am passionate about the innovative technologies that stem from the blockchain and I like to find the most crispy information to share with you.
Marine Debelloir
2469 items
