The new mortgage regulations take effect in a week’s time on March 18th, reducing the amortization period to 30 years from 35 years on high-ratio mortgages (mortgages with down payments of less than 20%). However, extended amortization periods of 35 and 40 years are still available to home buyers who are able to put 20% or more down (a ‘conventional mortgage’).
We recently spoke with Drew Donaldson, a broker with Safebridge Financial, to understand the different options available to home buyers seeking longer amortization periods. Merix financial, for instance, has a 40-year amortization product and it is expected most of the major banks will continue to offer 35-year amortizations on conventional mortgages. Drew highly recommends Merix’s product as it has flexible prepayment options (20% lump sum and 100% monthly) and a comparable mortgage rate.
Some home buyers are wary of longer amortization periods because 1) it’s a lengthy commitment and 2) it equates to higher interest paid over the life of the mortgage. However, if the mortgage product has good prepayment options, say 15-20%, you can exercise them to shorten the amortization period and cut the interest down considerably.
Still, Drew reminds us that to qualify for the longer amortization period home buyers need to put down the 20%. This is of particular interest to those who have good cash flow but smaller incomes. If you have the funds to make the required down payment, the longer amortization steps up the affordability potential. What’s more, once you put 20% or more down, you avoid the extra 1.75% – 3.15% CMHC insurance surcharge.
To contact Drew, call 1-888-629-0685