Exciting changes are coming for first-time home buyers starting in August. The federal government has announced that buyers of new build homes can now opt for a longer amortization period. Here’s how it could impact your home buying journey.
Current Amortization Rules
As it stands, if you’re putting down less than 20% on a home, you’re limited to a 25-year amortization period. This period defines how long you have to repay your mortgage, and shorter amortization means higher monthly payments but less interest paid over time.
What’s Changing in August?
Beginning in August, first-time home buyers will have the option to extend their amortization period to 30 years. This change aims to make it easier for buyers to qualify for mortgages by lowering the monthly payment amount.
However, this benefit comes with additional costs. The mortgage default insurance premiums, which are mandatory when putting down less than 20%, will increase with a longer amortization. Currently, with a 25-year amortization and a 5% down payment, the insurance premium is 4% of the mortgage amount. With the new 30-year option, this premium will rise to 4.75%. For instance, an extra $750 on every $100,000 of mortgage.
Is a Longer Amortization Worth It?
The decision to opt for a longer amortization depends on your individual circumstances. A longer amortization can make it easier to qualify for a mortgage, potentially helping you buy a home sooner. It also allows for lower monthly payments, which might be beneficial for your cash flow. Additionally, owning a home can provide the benefits of building equity and gaining from potential property value appreciation.
However, the increased insurance premium and the higher overall interest paid over the life of the mortgage are important factors to consider if you are deciding whether to employ a longer amortization.
If you’re a first-time home buyer, getting pre-approved is crucial. Come August, we can run the numbers to determine if this new option makes sense for your financial situation. If you have further questions about amortization or mortgages, please contact me at 780-720-2490!
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
