Worried about the RE market in vancouver slowing before you can sell your most recent leaky condo flip?
Looks like you can breath a sigh of relief.
The Canada Mortgage and Housing Corp. has just announced that they will offer mortgage insurance to interest only loans. This means that new buyers can stretch even further in hopes the market will continue to rise at a meteoric rate. Interest only loans enable the purchaser to pay only the interest on the loan for up to 10 years. This means you can buy and sell property without even touching any of the principal, just pay the rent on the money!
Monthly payments are therefore lower to begin with, giving buyers a way into high-priced markets, but rise as principal is added — even more so if interest rates also rise.
Interest-only loans have been all the rage in the United States in recent years, amounting to up to 20% of all originations and up to 50% in some of the hottest U.S. cities. Mr. Tal said the last time they were so popular in the United States was in 1929.
“In the past, they were given to the selected few, people who say paying principal is for losers and what I want to do is save the money and invest it more productively in the stock market,” Mr. Tal said. Today, in the United States interest-only loans are more widely available, even for sub-prime, high-risk borrowers.
“So if in the past the motivation was to invest the money more productively, today the motivation is to afford the unaffordable,” Mr. Tal said.
That oughta squeeze a bit more out of this market! Article in the National Post.