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Canada’s mortgage structure is worsening payment shocks as interest rates rise for longer terms: Desjardins

As interest rates continue to rise, many Canadians are facing the prospect of significant increases in their home borrowing costs. With mortgages maturing or terms ending, the potential for payment shocks is becoming a reality for many homeowners. To address this issue, Jimmy Jean V, VP and chief economist at Deeran, suggests that Canada should introduce mortgages with longer terms.

In a recent interview, Jean explained that longer mortgage terms, such as 10-year terms, could help mitigate the impact of interest rate fluctuations on borrowers. By locking in a rate for a longer period, households would have more time to build equity and see their incomes rise, making renewals more manageable. However, he acknowledged that there are challenges to implementing longer mortgage terms in Canada.

One major obstacle is the outdated legislation surrounding prepayment fees, which makes it difficult for lenders to offer attractive rates for longer terms. Additionally, the dominance of insured mortgages in the secondary market limits the availability of longer mortgage options. Jean suggests revisiting the legislation and creating a secondary market for uninsured mortgages to increase competition and drive down rates.

Despite these challenges, Jean remains optimistic about the potential for longer mortgage terms in Canada. By tapping into the depth and efficiency of other countries’ securitization systems, Canadian banks could offer competitive rates for 10-year terms. With the Bank of Canada also expressing interest in this issue, now may be the time to push for changes in the mortgage market.

In conclusion, as interest rates continue to rise, the need for longer mortgage terms in Canada becomes more apparent. By addressing legislative barriers and creating a competitive market for longer terms, borrowers could better manage payment shocks and secure their financial futures. It’s time for Canada to consider the benefits of longer mortgage terms and take steps towards implementing them for the benefit of homeowners across the country.

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