99 Year Mortgages and the Power of Amortization

Back in the late 80’s, the Japanese housing market came to a grinding halt. Homes were no longer affordable for your average Japanese consumer. The government came to the rescue with a novel idea: 99 year mortgages. You could buy a house, pay lower more affordable payments, your son or daughter would take over and pay the mortgage down and finally your grandchild at some time close to retirement age would finally pay off your mortgage. Who would want to do this? This was a short term solution. In 2007, we had 40-year amortized mortgages which allowed a great number of people to buy homes who normally would have continued to rent. This created a housing boom, but it made the banks nervous and terms were cut back to 35 years, then 30 and finally back to where they were in 2005 at 25 years. While longer amortizations mean lower monthly payments, the flip side is that you end up paying a lot more interest over time.
Calgary mortgage professionals use amortization as a tool to help their clients at various stages in their lives. Often we use the maximum 25 years to help people get into their first homes. The idea is to get them into home ownership regardless of the cost. Later when they renew we often suggest a shorter amortization if it’s possible.
For example, after paying down a mortgage for 5 years, a couple with a $300,000 mortgage renewing today would be offered a 20-year amortized mortgage with monthly payments of $1659. In 5 years the couple will have paid $40,356 in interest $59,214 in principal and have a balance of $240,785 left on the mortgage.
If the amortization was shortened to 17 years the payment would go up to $1,874.95, an increase of $215.95. but at the end of 5 years they would have paid  $39,365 in interest, $73,131 in principal and have a balance of $226,868.11. In addition, they would now only have 12 years instead of 13 years on their mortgage.
Now, if they are at a stage in life where their twins are going to be going to university or if they need to build a granny suite for aging parents, they may need to lower monthly payments in order to pay for renovations. If they have 20% equity in their home, they could extend their amortization to 30 or even 35 years with some lenders.
Now their monthly payment drops to $1,260 with a 30 year amortization.
And it drops to $1,149 with a 35 year amortization.
Amortization is only one tool that yourCalgary mortgaeg broker can use to save you interest, help you to pay off your mortgage quicker or to lower your mortgage payments. Be sure to call and ask them for help.

The Public's fear of Small Lenders

Every day I hear clients say, " who are they? I've never heard of this lender. Can't you put me into a bank mortgage?" Yes, I could but I like you and want to do what's best for you.
As a mortgage broker, I offer mortgages from banks, trust companies , credit unions and mortgage companies , sometimes called, "monolines". What is a monoline?. It is a financial company that only deals with one aspect of the financial market, in this case, mortgages. Unlike banks that offer car loans,RRSP's , consumer loans, credit cards and bank accounts, monolines only deal in mortgages.
What does this mean to you? No cross-selling. If you have one product at a bank they will call you, ask you when you visit a branch and mail you literature trying to get you to move all your banking business to them. This can be annoying and you do not always get the best products but you have it all in one place, which is what they want. Why? You are less likely to shop around and to move it to another institution if you have all you banking stuff in one place. You now are paying more for the same mortgage than your neighbour, just for the convenience of having your stuff in one place. Here's another trick. You know the mortgage insurance that banks try to sell you? It is non-transferable. When you move your mortgage you have to re-apply. If you are older and now have per-existing conditions, , it can be expensive and may not be available any more. Interestingly, the insurance companies that offer this product to the banks offered to make it transferable and the banks declined the offer. , hmmm. In who's best interest is that?
Many people worry about monolines being small. Why? They worry that if the monoline were to go bankrupt they could lose the mortgage. No worries, the mortgages are sold in bundles to insurance companies and banks. As Boris Bozic of Merix Financial says, "Why are you worried? you are not depositing your money with us, we are giving you the money?"
As you can see, there are no disadvantages in dealing with a mortgage company rather than a bank and there are plenty of advantages. Who needs a bank marketing department calling them at supper time 2 times a month to try to sell insurance, RRSP's or trying to get you to open another bank account?

      Banks have limited choices and they can not offer you the best rates , nor will they. They are interested in cross selling and will try to year after year. It's in your best interests to consider a monoline lender and to consult a mortgage broker to see who have the best product for you. 

Let me finish by offering you this video on monolines. It's an eye opener for consumers. 

Enjoy the video.

If you have any questions, pop me a line at davidcooke.ca