Maximum Amortization Changes:
The second major change for mortgages in Canada is the maximum amortization period that a home owner can get. Before 2008, a property owner could get a 40 year amortization. In 2008, that changed from 40 years to 35 years. In 2011, from 35 years to 30 years and recently, in 2012, the maximum amortization for most mortgages changed from 30 years to 25 years. Some longer amortizations were available from some lenders with over 20% equity in your home but the new announcement limits that possibility. If lenders decide to continue some amortizations over 25 years, a higher interest rate may be charged.
The amortization is the number of years that the total mortgage can be spread over. The longer the amortization, the longer it takes to pay off your mortgage but the smaller your mortgage payments. For instance, on a $200,000 mortgage amortized over 40 years (at an interest rate of 3%), the payments would be $713.83 monthly. The same mortgage amortized over 25 years is $946.49. That’s a monthly difference of $232.66. This could be the difference between an approval or a decline.
The significance of this change is not only the amount of mortgage payment that you use to qualify your initial purchase but also influences your refinance options in the future. If you want to refinance your home and you currently have over 25 years left on your mortgage, you have no choice but to use the new maximum refinance amortization of 25 years or less. This may limit the amount of mortgage you can qualify for in order to pull out equity from your home.
In 2008, the minimum down payment allowed on the purchase of a property officially changed from 0% to 5%. In reality, many lenders continued to offer options like 5% cashback that a buyer could access for their down payment. Now, borrowers can no longer use the cashback option for down payments. There are a few lenders that allow borrowed down payments but they are few and the qualification requirements are stringent. The best options for down payment are saving from your own resources or a gift from an immediate family member.
If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if this change will affect your ability to get the mortgage you are looking for.
Dominion Lending Centres The Mortgage Source