Mortgage Amortization and Buying Real Estate

Date: February 10, 2011

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 30 years. 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 30 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. They have reduced the amortization from a high of 40 years to the present 30 year time period. This is to encourage Buyers to stay out of debt by purchasing homes that they can still afford if the interest rate should rise. For some Buyers, this means that their purchase price may have to be adjusted downward since the shorter amortization period results in higher monthly mortgage payments.

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 plenty of price reductions 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 30 years. With lower mortgages, the Buyers will stay in the marketplace giving us the “normal”market we so long for.

An insured mortgage is a mortgage that is insured with a national underwriter for mortgage products. This insurance is required for mortgages where the Buyer has less than 20% down payment. This insurance provides a comfort for the lender. When a Buyer has very little down payment, the risk is higher that this Buyer will default on their mortgage payments. An insurance premium is added to the mortgage based on a percentage of the mortgage amount.

For more information on how we can serve you in your real estate needs, you may easily contact us right now by requesting information or by email at inquiries@WestWyndRealty.com. There's no obligation nor any cost to you and we will respond only at your request.