Mortgage Amortization and Buying Real Estate

Date: February 10, 2009

Author: Margaret Wheeler
Website: http://www.westwyndrealty.com

Mortgage Amortization - What is it and how does it affect me?

Amortization is the spreading out of your mortgage payments over a longer period of time so that the monthly carrying costs are manageable.

A typical amortization period can be up to 40 years...that is until October 15, 2008 at which point this 40 year option will be no longer available for government backed mortgages. The rising cost of real estate has been the driving force to longer amortization periods. It used to be that the maximum amortization period was 25 years, however a 35 to 40 year amortization is not uncommon in today’s marketplace. Prices have escalated so fast that the only way some first time buyers could get into the real estate market and still qualify for a mortgage was to spread the payments over a longer period of time.

With the sub-prime mortgage debacle in the U.S., the Canadian government is looking to avoid encouraging the same practice of zero down payment and long amortization periods in order to stem the tide of a similar real estate crash in Canada.

Will it work? The local prices of houses has escalated so fast in the past few years that the Sellers are now thinking that they can cash in on great profits. As with many things, when one person thinks of an idea, many have the same thought. As a result, our local market is well stocked with listings for the buyers and there are price reductions by the hundreds coming through our system.

With lower purchase prices comes the ability of the Buyers to fund their mortgages with the new guidelines of amortizing the mortgage over a maximum of 35 years. With lower mortgages, the Buyers will stay in the marketplace giving us the “normal” market we so long for.

A Government backed mortgage is a mortgage that is insured under the Canada Mortgage & Housing Insurance Plan. This insurance is required for all mortgages where the Buyer has less than 20% down payment. An insurance premium is added to the mortgage based on a percentage of the mortgage amount.

If you have real estate questions you want answered, drop me a line at Margaret@WestWyndRealty.com