A recent report stated that almost 50% of Canadians are unfamiliar with the new mortgage changes that took place on July 9. The new maximum amortization period on a high-ratio mortgage (when you have less than a 20% down payment) is 25 years, however the minimum down payment required is still 5%. With your home being the greatest investment you have, it's important to have a clear understanding of the new mortgage rules and how they pertain to you. In this article, I'm going to touch on two of the biggest changes that have taken place.
25 Year Amortization Period
A mortgage amortization period is the time it will take to pay your mortgage in full. As mentioned above, the maximum amortization rule applies to high-ratio mortgages. If you're getting a conventional mortgage (20% or more down payment), this limitation doesn't apply to you.
The numbers below show a comparison of your monthly payments if you had a 25 year mortgage versus a 30 year mortgage. This is assuming that you have a 5% down payment and your mortgage is based on an sample rate of 3.3% and a 5 year term.
***Cost of home:
Scenerio A: $200,000
Scenerio B: $360,000
Scenerio C: $550,000
*Minimum down payment (5%):
Scenerio A: $10,000
Scenerio B: $18,000
Scenerio C: $27,500
*Mortgage amount:
Scenerio A: $190,000
Scenerio B: $342,000
Scenerio C: $522,500
*Monthly Mortgage Payment (based on 3.3% interest):
-25 years:
Scenerio A: $928.67
Scenerio B: $1,671.60
Scenerio C: $2,553.83
-30 years:
Scenerio A: $829.77
Scenerio B: $1,493.58
Scenerio C: $2,281.86
*Difference in monthly payments:
Scenerio A: $98.90
Scenerio B: $178.02
Scenerio C: $271.97
This will mean that you'll qualify for a smaller mortgage and your monthly payments will be slightly higher under the new rules. However, think about how much in interest you'll be saving!
