No more 40 year amortization periods?
As of October 15, 08, the federal government will no longer allow 40 year mortgages and anyone thinking about getting a mortgage is now required to put at least 5 percent down on their purchase. The reason for these adjustments is to reduce the risk of having homeowners over leveraging themselves in this market. In other words, we are protecting ourselves from what is going on with the US housing market today.
However, the banks are still allowing 35 year mortgages and the difference between a 35 year and a 40 years is very small. For example:
On $200,000 mortgage at 5% 5 year fixed rate, 35 year mortgage will have payments of $1002.95 totallying $48,077 in interest during the 5 year term and $12,093.81 in principle. For a 40 year mortgage, payments are $957.61 (about a $45 dollar difference) during the 5 year term and $9,021.20 in principle. However the difference in principle is significant (around $3000).
It really depends on what you are purchasing the property for. For investment or a quick flip, it would make more sense to get a longer term mortgage. However if you are planning on living in the suite and keeping the suite till it is paid off then it would be more beneficial to do a shorter term mortgage.
