Posted on 09/19/2023 8:12:27 AM PDT by davikkm
The financial situation in Canada is showing some concerning signs of strain:
Around 24% of mortgage holders in Canada are currently struggling to meet their monthly payments, according to data from the Canada Mortgage and Housing Corporation.
Additionally, three major Canadian banks, including BMO, TD, and CIBC, have revealed that roughly 20% of their residential mortgage borrowers are in a state of negative amortization. This means that these borrowers owe more on their mortgages than they originally borrowed, totaling nearly $130 billion in loans.
This scenario is putting significant pressure on Canadian banks, and it highlights the urgency of reducing interest rates. If rates remain high, the problem of negative amortization will persist, causing borrowers’ mortgage principal to continue rising even in a declining housing market.
The concern is compounded by the fact that many average house prices in Canada have surged beyond the million-dollar mark. For instance, the average home price in Vancouver has reached $1,188,000, while in Toronto, it stands at $1,164,400.
These developments collectively paint a picture of financial stress in the Canadian housing market, with a growing number of borrowers facing difficulties in meeting their mortgage obligations while grappling with soaring property prices.
Sources:
Negative amortization??? How in hell can *that* happen?
My guess is a floating-rate, relatively short-term loan for nearly 100% value. But what bank would lend into a huge property bubble on those terms?
What happens when you keep on letting in people from places like China or India or the Middle East and elsewhere with bottomless reserves of population. Vancouver is bounded by ocean and mountains and Toronto’s Golden Horseshoe has farmland and nature areas being threatened by more and more population.
In addition much of Canada has California-like environmental regulations and stunning red tape making new development difficult and extremely expensive.
I’m sure a Canadian can chime in with more detail, but from what I understand. Canadian mortgages do not have a fixed rate over the entire loan period. There is a period where the rate is fixed, but is adjusted period to period. I believe it is something like 3 or 5 years.
Also,I've read that birth tourism is big in Canada. Pregnant Chinese women enter the country,drop a kid (who's automatically a citizen). More insurance for the future.
IMO Canada and the US are absolutely stupid to have automatic citizensip at birth. We're the only two civilized countries on earth that still have it.
Negative amortization is a financial term referring to an increase in the principal balance of a loan caused by a failure to cover the interest due on that loan. For example, if the interest payment on a loan is $500, and the borrower only pays $400, then the $100 difference would be added to the loan’s principal balance.
www.investopedia.com/terms/n/negativeamortization.asp
Had to look this up as I could not understand how it would happen. The above makes sense, I think.
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