Reduced monthly payments have Canadian homebuyers jumping on board

Amortization periods or the length of time
calculated to pay off the entire mortgage, are a
significant factor in the size of the monthly
payments. The extra five years or ten years to pay
off a mortgage can make a significant difference to
the household cash flow of Canadians who are
trying to manage a mortgage.

Let’s say that a young couple looking for their first
home can manage only $1100 to spend on a
monthly mortgage payment. They’ve found a home
they love, but it’s going to require a $190,000
mortgage. They’re just starting out in their jobs and
they know they shouldn’t exceed their budget, but
with interest rates at 6% and an amortization of 25
years, their monthly payments will be almost $1216:
a figure that’s likely to place an uncomfortable
crunch on cash flow and place the home out of
reach. If they extend their amortization to 35 years,
the monthly payments drop to about $1084 - well
within their budget.

Longer amortizations, of course, come at a cost,
although the 30-year amortization premium
surcharge is under a quarter of a per cent. (The
premium surcharge for the 35-year amortization is a
little higher, at .40 per cent). And, of course, the
homebuyers may pay more for the house in the
long run, but many homebuyers have the ability to
increase payments and shorten their amortization at
a later date. For many Canadians, the real
challenge is those first few years as they are getting
their financial feet under them.

Lower monthly payments mean a better chance at
owning a home, better cashflow if you’re struggling
month-to-month or more house for your monthly
payment. The longer amortizations are not for
everyone, but if you’re in the market for a high-ratio
mortgage, with an extended term, you’ll want to get
in to see an mortgage professional soon, and
review your options.