25, 30, 40 Year Mortgages, Oh My!

by Darrin DeRoches July 5 - 11, 2012

The big thing this week is the change in the mortgage lender practices. Everyone has been reporting how the 30 year mortgage amortization is gone and only 25 year will be available plus they are changing the Gross Debt Ratio is being lowered to 39 per cent and lastly they will only allow 80 per cent on refinancing. There are also other rules about buying over a million dollars, but if you are buying at that level, you’ll have to put 20 per cent down. So suck it up.     Everyone is focusing on the new rules but no one is really talking about what you can do if these rules affect you buying a home. First off you can apply for a mortgage before July 9th and you can have that rate held so you can qualify for the old rates as long as you must complete the transaction before Dec 31st 2012. That can make a big difference for the average home owner who is looking to buy this year and want to get the most house for themselves. The average consumer will be able to get almost $50,000 more in an available mortgage which can make a huge difference in the location, size etc.      The 85 per cent loan to value on your home will also enable the average consumer about $20,000 dollars more than the 80 per cent new rule. So if you are even considering on doing a re–finance to do renovation or whatever you will have to get it done before July 9th. Even if you do not use the money available to you, it will be approved and you can use the money in the future. The funny thing is the government only allowed 18 days for these changes to take place, so banks will be overwhelmed with applications and may not be able to process everyone.  Some banks may even start the new rules early while others may try to compete by locking in the old rates to the end of the year to attract new business.     The other thing most people will not tell you is that these rules only apply to the “big banks”. Credit Unions and private mortgage lenders will still offer the old rates.  That being said you will need a good mortgage broker who will shop your deal around to these lenders. There is always another way to do a deal so if you are looking to get the most bang for your buck consider looking into the alternative. The difference between a 25 year and 30 year mortgage is very little in the monthly payment but it can make a huge difference in the home you will be able to qualify for. If you consider the life of the mortgage and the size of the home, location etc., you will make a great deal more on the larger home and it will cover the difference of the five more years of payments. Plus you will be living in a better home over the course of the mortgage. Remember, five years ago we were taking out 40 year mortgages and now we are discussing 25 year mortgages. Wow! V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.