What is the Maximum Amortization that is Available Today?What is the Maximum Amortization that is Available Today?
Since 2008 the government of Canada has made mandatory changes to reduce the maximum amortization period from 40 years down to 35 and now down to 30 years for any insured mortgages.
Insured mortgages (also known as high ratio mortgages) are mortgages that require less than 20% of the value of the home for the down payment or for refinancing, less than 20% in equity. The government backs these mortgages for the protection of the lenders. Currently with these mortgages the maximum amortization period is 30 years.
The media has covered how the amortization has been reduced to 30 years in depth, but they have failed to mention that this is not the case with other mortgage options. Mortgages that are often referred to as conventional or uninsured mortgages, which entail a 20% or greater down payment or equity, still offer amortization periods of up to 40 years.
There are two main advantages of obtaining a mortgage with a
longer amortization period.
1. Ability to qualify for a larger mortgage amount.
2. Lower monthly mortgage payments.
Longer amortization period options have been utilized by many investors/clients we deal with as it allows our clients to cash flow on rental properties. Additionally, longer amortization leaves clients with the flexibility of keeping lower payments for personal reasons such as maternity leave or unexpected expenses which will decrease your overall household income and financial situation.
On paper 40 years may sound like a long time, however, the clients that we deal with are educated on the different prepayment options that allow them to pay down the principal on the mortgage, which will decrease the overall amortization period. The advantage of having the initial 40-year amortization is to keep the payments as low as possible to provide the flexibility to cash flow and manage finances.
Source: MyMortage news letter