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40 Year Mortgage Meet the New 50 Amortization!

Toronto Real EstateWith the 40 year amortization mortgage still under 2 years new, it's already dominating the mortgage market.   And if that wasn't enough flexibility for the average home buyer, the first 50 year amortization mortgage has hit the Canadian market.   While not in the mainstream, one mortgage company is taking the lead with this offer.  Centum LaBuick has just added this new product to their line.

It's taken me a while to adjust to the offering of a 40 year amortization, but once I figured out a few tricks, the idea works well for many consumers.

With any "gift" from the bank, there is usually a little charge that comes along.   Typically you can add .60% as an insurance fee for the added benefit of extending your mortgage over a 40 year amortization.

But wait, if you are not risk tolerant this extra fee might just give you a little peace of mind.  

Here is my take on the situation.   First year, take advantage of the lower payment structure.   The payment savings can go into decor, minor repairs and what I call the "adjustment period" - getting acquainted with your new payments.

Second year, call the bank and ask to have your payments increased by 10%.   Most banks will allow you to add up to 15% extra or even double up each month.   The 10% will go straight into your principal, basically reducing your amortization.   You are still in control, worse case senario - call the bank again and revert back to your original payment.  Pick the right bank and ensure you have this ability - if not keep searching for the right bank!

The ultimate goal is to work the pre-payments to your advantage to reduce that amortization, by increasing a little bit each year.

The best part of the 40 year amortization is, if you pick the right bank, you have peace of mind with basic lower payments but you can increase your pre-payments when you are ready and go back to the original plan if you get nervous.  

Check our Blog on the 40 Year Amortization Plan from last month, showing you the typical monthly savings.

Click here for a confidential free mortgage pre-approval and analysis to find out what's right for you.

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