The astounding rise in prices of residential real estate, especially in Western markets has coincided with the introduction of interest-only mortgages (no principal payment for an introductory period) and mortgages with long amortizations of 30 and 35 years. Today’s Financial Post carried a story on how eroding housing affordability is making these mortgage products popular.

Just for fun, let’s compare a $250,000 mortgage with a 6% interest rate under three different amortization scenarios: 15 years, 25 years and 35 years. The monthly mortgage payment works out to $2,100, $1,600 and $1,413 respectively. However, the total interest paid is $128,000 for a 15-year mortgage, $230,000 for a 25-year mortgage and a stunning $344,000 for the 35-year mortgage (all of it in after-tax dollars as mortgage debt is not deductible in Canada).

It almost seems quaint now but not so long ago, a young couple would scrimp and save for a down payment on a house and slowly build equity in their home by paying down the mortgage. These days though, as Harper’s Magazine notes in a recent issue, “a growing number of workers [are] locked in to a lifetime of debt service that absorbs every spare penny”.