Recently, I discussed the return of 30-year amortizations for first-time buyers purchasing a brand-new home. While this change might seem like a great way to make homeownership more accessible, it’s important to understand the drawbacks before jumping in. Check out my video for more information:

The Upsides and Downsides of 30-Year Amortizations

The primary reason the government has reintroduced 30-year amortizations is to make it easier for first-time buyers to qualify for a mortgage. With a longer amortization period, monthly payments are lower, which can help you meet the qualifying criteria for a mortgage on a newly built home.

However, this comes with some downsides. First, the mortgage default insurance premiums are slightly higher. For instance, if you’re putting down 5% on a resale home, your insurance premium would be 4% of the mortgage amount. But with a 30-year amortization on a new home, that premium increases to 4.2%. On a $300,000 mortgage, that’s an additional $600 added to your insurance premium, bringing the total to $12,600. While this difference might not break the bank, it’s something to be aware of.

The Long-Term Costs

The real concern lies in the extra five years of amortization. While spreading your payments over 30 years lowers your monthly costs, it significantly increases the total interest you’ll pay over the life of the loan. Those additional five years can add thousands of dollars to your long-term borrowing costs.

Here’s the good news: You don’t have to stick with that 30-year amortization. Once you’ve used it to qualify for your mortgage, you can start making extra payments or lump-sum payments to reduce the life of your mortgage. By doing so, you can eliminate those extra five years and save yourself a significant amount of money in the long run.

If you’re considering a 30-year amortization, make sure you understand both the benefits and the potential costs.

I am here to ensure that your path to homeownership is not only successful and seamless, but also rewarding. If you’re looking to get pre-approved for a mortgage to buy a property in Edmonton, fill out my online application. I’m here to help you every step of the way.

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.