30, 35 and 40 year Amortization
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30, 35 And Even 40 year Amortization Periods Now Available!
It's true! In recent months both CMHC and Genworth Financial (Mortgage
Insurance companies for high ratio mortgages) have launched mortgage insurance
now available for longer amortization periods.
So what does this mean to the average consumer? Well, first let's review
exactly what an Amortization period is. By definition, amortization is the term
used to describe the total period of time over which the entire mortgage is to
be paid assuming regular periodic payments.
In other words, it is simply the process of gradually paying down the principle
balance of your loan. Each payment toward the principle reduces your total loan
by that amount. The shorter the amortization, the faster you pay off your loan.
Many people will effectively reduce their amortization periods by increasing
their payment amounts. This, in turn, increases the amount of principle they
pay each month. Accelerated payment frequencies ( For example Bi-weekly
accelerated vs. Monthly payments) and lump sum payments (paying an extra amount
from time to time in one lump sum payment) will also reduce the amortization
period.
So if the goal is to reduce your mortgage and pay it off as quickly as
possible, why would anyone want to set up their mortgage loan on a longer
amortization period? There are actually several reasons.
First, consider the idea of home ownership vs. renting. With today's booming
economy and the seemingly endless increase in home prices, many Canadian
consumers have been priced out of the market, making home ownership a distant
dream. A longer amortization period can often be the solution. The longer the
amortization, the smaller the required monthly payment and thus the lower the
income required to qualify. In some cases these new longer amortizations
periods will mean the difference between owning a home or not.
So, a longer amortization period means a lower monthly payment. This can be a
huge advantage. By getting your mortgage set up now on a longer amortization
you set your monthly minimum required payments fairly low. This can be a great
asset when times are tough and you can only afford to make the minimum required
payment. When things are going well, however, you have the option to make a
higher payment and in doing so will effectively lower your amortization period.
Suppose you wanted to do some home renovations, but did not want to increase
your current payments. A longer amortization could do just that. You could
refinance your property, remove the money you need to renovate your home or
develop your basement and by increasing your amortization period, your payment
could remain the same or even decrease! Meanwhile, your house is increasing in
value due to your recent improvements.
Click Here to Apply Now!!
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