Qualify for a Higher Priced Home: Extend Amortization

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If you’re currently in the market for a new home or have been exploring the real estate scene recently, you’re likely well aware of the new mortgage stress test regulations.

These stricter measures may have left you feeling like your homeownership dreams are slipping away.

But fear not, as there’s a way to boost your maximum home purchasing power: extending your amortization period.

Amortization Options

For those who are planning to put down at least 20% on a home purchase, the good news is that you have the option to extend your amortization period beyond the standard 25 years.

This opens up the door to a 30-year or even a 35-year amortization.

However, before making this significant decision, it’s essential to weigh the pros and cons of each choice.

25 vs. 30 Year Amortization: The Battle Begins

The battle of choosing between a 25-year and a 30-year amortization period can be a daunting one, and it all boils down to understanding the advantages and disadvantages.

The main advantage of opting for a longer amortization period is the immediate boost in your purchasing power.

You can afford a more expensive home, which may seem like a dream come true. However, this pro comes with a hefty con: extending your amortization period by just five years can cost you thousands of dollars in extra interest payments.

If your primary goal is to secure the most competitive mortgage rate, generally, a 25-year amortization is the way to go.

Your monthly payments will be calculated as if you’re paying off your loan over 25 years. This approach works well if you’re buying in a more budget-friendly market.

Still, if you’re aiming for a property in one of the more expensive markets, such as Calgary, Toronto, or Vancouver, you might find it challenging to qualify due to the need for every dollar of affordability to count.

Interestingly, the difference in mortgage rates between a 25-year and a 30-year amortization is not substantial. Typically, a 30-year amortization carries only about a 0.10% higher interest rate.

So, if opting for a 30-year amortization means you can afford a home that’s $70,000 more expensive, it might make perfect sense for you.

Extend Your Mortgage Horizon: The 35-Year Amortization Option

When it comes to securing a mortgage, the traditional 30-year amortization period is the norm. However, there’s a lesser-known option that could potentially open new doors for homebuyers – a mortgage with a 35-year amortization.

Imagine this: you have the opportunity to stretch your mortgage repayment timeline beyond the conventional three decades. In some situations, opting for a 35-year amortization might prove to be a strategic move, especially in markets where every dollar makes a significant impact.

By choosing a 35-year amortization, you could see a substantial increase in your maximum purchase price. Picture this: an additional $70,000 that you can allocate towards a property. This flexibility can be a game-changer, allowing you to consider homes that may have been just out of reach with a standard 30-year plan.

However, it’s crucial to be aware of the trade-offs. While the extended repayment period grants financial flexibility, it does come with its own set of considerations.

Mortgage rates tend to be higher for extended amortization periods, and there may be additional lender fees – typically ranging from 1% to 2% of the mortgage amount.

Before jumping into the 35-year amortization option, it’s imperative to conduct a thorough financial assessment. Make sure you can comfortably handle the increased payments and are prepared for any additional fees that may arise.

While the prospect of a higher purchase price is enticing, responsible financial planning is key to ensuring a smooth homeownership journey.

Conclusions and Further Thoughts

The choice between a 25-year, 30-year, or even a 35-year amortization period is a decision that should not be taken lightly.

It ultimately depends on your financial situation, the real estate market you’re entering, and your long-term homeownership goals.

While extending your amortization period can open doors to a more expensive home, it’s essential to weigh the cost of the extended interest payments against your immediate budget constraints.

Ultimately, the right amortization period is a highly personalized choice, and it’s crucial to consult with a financial advisor or mortgage professional to make an informed decision that aligns with your unique circumstances and goals.

Contact Huber Mortgage to talk through your options!  Contact HERE.



PS – One of my hobbies is blogging about mortgages, debt and government policy.  During the day I’m a MORTGAGE BROKER in Kelowna, BC!

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