Brokers weigh in on amortization recommendation

Brokers weigh in on amortization recommendation

Brokers weigh in on amortization recommendation Longer amortization periods for first-timers will help brokers broaden their client base, but a number of industry players believe it may not necessarily be a good move.

“With rates as low as they are it would be easier for clients to qualify; however, I like 25 year amortization periods because buyers can build equity quicker,” Jonah Wright of Mortgage Intelligence told MortgageBrokerNews.ca. “The applications I usually get from first-timers are from people who are buying later in life, so I don’t know if longer amortizations would benefit them.”

The Canadian Home Builders Association is calling for longer amortization periods for first-time buyers. The Globe and Mail has obtained government documents that show the CHBA had 61 meetings last month with officials and politicians to discuss proposals including longer amortization periods for first-time homebuyers.

Of course, the Canadian government has shortened the maximum amortization period for Canadians in a number of different measures meant to cool the housing market.

And while brokers’ initial sentiment may be to support the CHBA’s recommendation, certain players believe more thought and care should be put into the decision.

“You can look at it in two ways – extending the amortization period would open up the market to a lot more people to qualify,” John Papadopoulos of Verico Advent Mortgage Service told MortgageBrokerNews.ca. “On the other hand if rates go up it could put people in a bad financial position.”

Papadopoulos admits it will create more clients, but he also suggests a tiered system if the government does decide to consider the CHBA’s recommendation.

“If they want to extend the amortization period they should do it at certain points,” he said. “For example, clients should be required to put down more than five per cent to qualify for a longer amortization to ensure they have more skin in the game.”
 
30 Comments
  • Debbie 2015-06-25 9:34:52 AM
    I don't think 30 yr amortization is too bad. but 35-40 yr ams did nobody any favours. you simply won't build any equity in your home for a very long time with the longer amortizations.
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  • Omer Quenneville 2015-06-25 9:38:18 AM
    Shorter amortization builds in a safety net for banks to insure enough equity to pay the huge clearly undisclosed discharge penalties. At the same time I think everything possible should be done to get first time buyers into the market so they can start building equity for future retirement etc... we will pay later when they retire without equity or require subsidized housing now, Some people need help to get started not road blocks.
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  • Warren Ross 2015-06-25 10:01:25 AM
    I think the amortization should remain at 25 years, but i think first time home buyers should be allowed to pay interest only payments in the first five years, even on an insured mortgage. This will enable first time home buyers the ability to furnish and renovate their homes without running up too much consumer debt. I figure on a 250k mortgage, a home buyer could save roughly 500 a month that they could use for renos and furnishing, or roughly 30k over 5 years. Perhaps a cash back component can be added with proof of renos or furnishings. Perhaps the combined rate of interest only on the mortgage and the cash back could be much lower than the current 5% cash back rates that nobody can afford.
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