Today’s Homeowners Building Equity Faster Than Ever

Despite record-high home prices, historically low mortgage rates are still allowing today’s homeowners to pay down their mortgages faster than ever.

At today’s rates, more than 60% of an average borrower’s first mortgage payment goes towards the principal, according to data from Edge Realty Analytics.

This means that at prevailing rates, today’s new buyer will have paid off at least 16% of their mortgage within the first five years.

Comparatively, for homeowners in the 1980s, five years of mortgage payments resulted in just 3.8% of their mortgage being paid down.

The Royal LePage analysis included all costs associated with buying and selling a home, including closing costs, fees for lawyers and real estate agents and land transfer taxes. It also took into consideration ongoing costs, such as utilities, repairs, homeowners’ insurance and condo fees.

The scenarios tested included a mortgage renewal at a higher interest rate of 3.64% in five years. “Even in that scenario, homeownership is expected to remain more affordable than renting, in most situations,” the analysis found.