Use It OR Lose It: Mortgage Financing Options May Disappear In The Next Few Months

Recent pronouncements by our dear federal Finance Minister Flaherty may change the options home buyers currently have when considering purchasing a Toronto house or condo.

Up until about mid-year 2008 every Canadian home buyer had the option of taking a 25-, 30-, 35- OR 40-year amortization on their mortgage. This means that for a 40-year amortization for example, the mortgage payments are spread out as if to pay that mortgage back in 40 years if the interest rate and payments stayed the same all the way. We had zero down payment options available on insured mortgages.

The benefit this brings is that monthly mortgage payments are lowered the longer the amortization and therefore more people can qualify for mortgage financing.

Then in July 2008 the Federal Government wisely adjusted the rules so that the maximum amortization available was 35-years and the minimum down payment on a high-ratio mortgage was 5%.

To help out a bit with this increased down payment requirement, the government also changed the Home Buyer’s Plan rules where first-time buyers could now withdraw up to $25,000 each from their RRSP to assist with their down payment or closing costs.

So… we’ve come through the recession in apparently one piece, the Toronto real estate market is moving very strongly and contributing greatly to the overall economy and what does the Federal Government NOW want to do? Increase the down payment required to obtain mortgage financing even further AND eliminate at least the 35-year amortization mortgage payment option!

This will certainly put a damper on the Toronto home buying and selling market. Many first-time buyers have limited down payments saved. With an average sale price in the GTA of approximately $400,000, a 5% down figure already means that the minimum down payment required is $20,000.

To make this $400,000 average sale price affordable, most buyers (both first-time and move-up) are opting for a 35-year amortization and there are some good reasons for it.

You can always increase your monthly (or ideally bi-weekly) payments with current bank pre-payment privileges but it’s much more difficult bureaucratically to lower your payment level.

For example, a couple who are planning to expand their family in the future might take a 35-year amortization, increase their payments while both spouses are working, and then scale back to the 35-year am for the first-year perhaps while incomes are lower and family expenses are higher.

If the 35-year amortization option is lost, this will make it much more difficult to plan strategically for some home owners.

So… use it or lose it! If changes are made by Flaherty, they’ll probably be in early spring – March or April time frame. To make sure you have a 5% down / 35-year amortization option locked in, you’ll need to make a purchase in the first 90 days of 2010 and you’ll need to have a mortgage rate locked in for perhaps as long as six months.

Currently our Toronto’s Real Estate Team – Thomas & Sally Cook PLUS team at RE/MAX Hallmark has the ONLY agreement with a big-five Canadian bank where our clients can lock in their mortgage rate for a full SIX months.

Now, best of all, getting a mortgage pre-approval doesn’t cost you a penny AND you’ll get it in writing. Most bank branch lenders don’t want to be bothered going to all the work involved to do what we call a “FULL Mortgage Pre-Approval” but our Toronto’s Real Estate Team considers it essential to protect our buyers when they go out to buy a house or condominium.

To get your 180-day rate guarantee and full mortgage pre-approval IN WRITING, you just need to ask. You’ll be glad you did!

Ironically, Flaherty’s pronouncement may help to make what he fears most… an extremely busy house buying market… come to fruition.

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