The long term mortgage strategy - hypotheque

Submitted by: vanduyse

Why should you take out a 25, 30 or 25 year mortgage?

The variety of choices in mortgage maturities that are now available with certain lenders allows us to create very individualized mortgage strategies for each of our clients - hypotheque.
Since spring 2006, it became possible to repay a mortgage over a period of 30 and even 35 years.

Is taking out a longer amortized home loan the right solution for you?

You definitely don't want to pay off your mortgage (hypothèque) more slowly, and end up paying more interest on your mortgage. Most people still prefer the regular 15 to 25 year paydown schedule.

But there are situations where extending your mortgage in this way works:

Anticipated income: If you know you will be receiving an increase in your income in the coming years, even if you haven't received it yet, this may be an option. Perhaps
-one of you is in school, and will finish soon
-your salary is based upon certain union dictated increases and you will be earning more in a year or two.
-You are not able to prove adequate income to qualify for a shorter term mortgage because you are self employed, but your verifiable income will be increasing shortly.
-You need to be flexible in your payments. Some workers, such as the self employed, seasonal workers, or people who work on a commission basis prefer to keep their mortgage payments down so they can cover the periods when their income is lower. (prêt hypothecaire)
-If you have a rental income property, you may prefer to increase your income each month by keeping the mortgage payments down because of tax reasons and reinvest the increased income rather than build equity in the property.

How to shorten the real amortization period of a mortgage - prêt hypothecaire.

Is it possible to shorten the amortization term of a 25 or 35 year mortgage or even a 15 year mortgage?

Yes, you can.

We reveal many strategies with our clients that allow them to pay off their home loans much more quickly than the original amortization date.
Just because you commit to a mortgage note of 25 or 35 years with a lender does not mean that you have to pay it over 35 years. It is not the piece of paper that decides the actual repayment schedule, but instead the payments that you make over the life of the loan.

Therefore, if you can make early payments, you can lessen the period of amortization of the loan.
Lenders will permit you to make prepayments of your mortgage, within certain limitations. This allows you to increase the amount of payments you make on your mortgage whenever you can. You can do this in two ways:
1. Make an increased monthly payment. Lenders will allow you to remit a larger amount on your mortgage by 20% per year and not be penalized.
2. Pay down on the principal. Many, if not most lenders will permit you to designate a certain additional portion of your monthly payment as a principal payment, again, for up to 20% per year.

Look at the following scenario:

A teacher who is a prospective home buyer will receive his graduate degree in nine months, at which time he is eligible for an automatic salary increase. He believes he is better off buying now rather than waiting until he can afford to pay a higher monthly mortgage payment. He can take out a 25 year mortgage at 5.4% and pay $1,209.17 per month, or a 35 year mortgage and pay $1,305.18. After two years, whenhis salary has increased by 20%, he starts paying an additional $200 on his mortgage. By paying $1,253.18 instead of $1,053.18 per month, and if he makes no other changes, his mortgage will be fully paid in 22.4 years, or 24.4 years in total. (hypothèque)

What conclusion can we draw from this?
Choosing an extended period home loan (prêt hypothécaire) amortization may not be for everyone, but this is one of the many tools that we can use to formulate a mortgage strategy that is just right for you.