Tuesday, July 13, 2010

Canadian mortgage market

I was shocked, shocked! to learn that Canadians cannot get 30-year mortgages. I was even more shocked, shocked! to learn that the typical mortgage is 5-years. Who can afford to live in Canada? I shrieked!

The average house price as of January 2010 in Toronto - $409K, and in Ottawa - $324K. Other sources for prices are here and here (which reports a national average as of 05/2010 of $346K, Toronto $446K, Ottawa $334K.)

A 5-year mortgage at 6% for a loan amount of $300,000 is about $5,000 per month. The average montly income of a computer programmer is about $3,000 per month (not so different from a carpenter!) in 2005 dollars (and I'm assuming before tax). Even with 2 incomes so that the montly household income reaches $8000K before tax, I find it hard to believe that Canadians can afford to own a home in Canada. (Assuming a 30% tax rate, that would he a HH income of $4,200.)

1 comment:

Nick Rowe said...

Nope! That's not what a 5 year mortgage means. It means the interest rate is fixed for 5 years. You can still amortise the mortgage over 30 years (or whatever).

What we call a 5 year fixed rate mortgage is like your variable rate (adjustable rate?) mortgage. Except instead of the interest rate adjusting up or down every month, it adjusts only every 5 years. Which makes it more predictable, and smooths things out.