Why take a mortgage over 25 years, 30 years or 35 years?
Flexibility in amortization periods that are now available with some lenders can create more customized mortgage strategy for our customers.
Since spring 2006, it is now possible to repay a mortgage on 30 and 35. 1
Is this a good idea to take a longer amortization?
CMHC OTTAWA, February 25, 2006 ; As a test, CMHC will provide mortgage loans with an amortization period of 30 years;
“The extension of the amortization period will facilitate the access of Canadians to own property because they will be able to reduce their monthly payments (principal and interest),” said Karen Kinsley, CMHC President.
“This initiative stems from our commitment to ensuring that Canadians can get a quality home at an affordable price. We constantly strive to enable a greater number of Canadians to access the property. “
Certainly the goal is not to take longer to pay off or pay more interest to pay for his house. In fact, most people should choose an amortization of 15 years or 25 years.
In some cases it is a very good idea:
Future income – many people are almost certain to get significant increases in their future income but they have not yet. Example:
a spouse is in school and completed soon;
income is established by a collective agreement by years of experience;
income now self-employed does not yet appear on the notice of assessment.
- Flexible payments – some workers have incomes that vary each year and they want the minimum payments as low as possible to reduce their obligations in bad times (working on commission, seasonal worker, self-employed)
- The demands of the bank – many records are limited by the policies of the bank. For one reason or another debt ratios are too high and should be reduced.
- Rental income – The property that receives rental income are tax deductible. The owners prefer to have more income every month to reinvest that accumulate equity in the property, this equity is not easily accessible.
How to shorten the depreciation of the real mortgage
Is it possible to shorten the amortization of a mortgage of 35 years to 25 years or even 15 years?
Sure.
We share with our customers several strategies to pay off their mortgages much faster than the initial depreciation.
This is not because you sign a mortgage at the notary with an amortization of 35 years you must pay in 35 years. This is not the document which determines the actual amortization payments but you will do throughout the duration of the mortgage.
Prepayments reduce depreciation.
All lenders can make certain prepayments. This entitles you to pay amounts in addition to minimum payments. There are two types of prepayment:
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Every time you make an additional payment, your depreciation decreases. You can create your own program of accelerated payments.
A concrete example
“Mr. A” is completing a master’s degree in nine months which will increase his salary as a teacher. He decides to buy a house and need a mortgage of $ 200,000. Payments over 25 years (rate 5.4%) are $ 1209.17 per month and over 35 years they are $ 1053.18. He chose the 35-year mortgage.
Two years later its revenues rose 20% and he decides to increase his mortgage payment of $ 200 per month ($ 1,253.18 per month). If it does not change its payments, it will have paid off the home in 22.4 years for a total of 24.4 years.
Well, mission accomplished!
Conclusion
The longer amortization periods are not for everyone but these are wonderful tools mortgage so we can customize a mortgage strategy just for you.
We have creative ideas to help you finance the house for you.