Extended Amortization for the Win

Calendar by Stephen Korecky
Calendar by Stephen Korecky

Did you know that you can take out a mortgage for periods longer than 30 years? That’s right, there is the option of so-called extended amortization with which you can spread your mortgage out across as many as 40 years in Canada!

To even have a shot at extended amortization periods, however, you need to have saved up more than 20% of the price of the property you’re buying. In other words, you need to put a down payment in excess of 20% of the house value and you can then amortize for longer.

This approach is designed for those who would like to ease up on their monthly budget and decrease their mortgage premium burden. This is because an extended period automatically means lower monthly payments; you’re paying up the same sum, but over many more months. Of course, accrued interest will shuffle the cards here, increasing the total cost of your mortgage, but your monthly payments will still be lower than a shorter maturity mortgage.

There is another boon to applying for an extended amortization period: it increases the face amount for which you’re likely to be approved. This is because your lender will see a lower risk of default with your expected monthly payments. Compared to your income, the assumed premiums will seem easily manageable. Once you’re approved, however, you may of course re-schedule your payments across a shorter period, even 30 years or less, thus getting the best of both worlds.

If you’re looking to apply for an extended amortization period with a high face amount mortgage and then to shorten your repayment schedule, make sure that you’ll be comfortable paying back in larger instalments. Some people may expect a pay rise or a one-time influx of inheritance income — neither concept means anything to lenders but will help with repayments. Furthermore, this technique is useful for couples living together in an unofficial partnership who share their living expenses but cannot document their attachment convincingly enough to the lender.

If you manage to pull this trick off and stick to the shortened mortgage period, you’ll be rewarded by a significantly lower overall interest burden and will enjoy a larger/more luxurious house than you could otherwise enjoy.

As always, be smart about your decisions, plan ahead, and consult as much as possible with your professional Calgary Realtor®. Please share with us your questions or experiences in the comments or contact us directly.

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