Nearly a year ago-back in April 2011- when the changes to mortgage policies were announced, many people were under the impression that this included the abolition of all 35 and 40 year amortizations.
What many people do not realize is that in fact 35 and 40 year amortizations are still available to them, and the question then is how and through whom?
Well, unfortunately the chartered banks- the Scotias and the TDs of the world-they are not going to be able to offer an amortization of 35 or 40 years.
We need to look at credit unions as well as “non-bank” lenders often only available through the services of a Mortgage Broker. Having said that, there are certain criteria that need to be met.
First and foremost, you need 20 percent down, to avoid mortgage default insurance, or CMHC. When default insurance is not required, and the government is not involved, the lender can adhere to their own policies and take on any risk they deem fit.
So, if you want to get a 35 year amortization or a 40 year amortization you can do so if you have 20 percent down. But why would you do that? Well, plain and simple it is all about cash flow.
If you have an investment property and you want to have a it positively cash flow each month, you may want to consider going with a longer amortization of 35 or 40 years.
Also, at present, we are in an environment of record low interest rates. But what if rates are higher upon renewal? Going with a longer amortization of 35 or 40 years will help balance out the payment shock that would occur with a higher rate on renewal.
Finally, in the event of a difficult time in a person’s life, job loss or poor health prohibiting someone to work for example, where they may find themselves in a situation where they really need to keep expenses down to a minimum each month-a longer amortization of 35 or 40 years may come in handy.
If you or someone you know is considering a longer amortization period, or isnt sure of the difference and the long term impact, drop me a line.
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