Breaking Down the Numbers: Is a 30-Year Amortization Right for You?
Starting December 15, 2024, first-time homebuyers in Canada will have the option of a 30-year amortization on insured mortgages. Alongside this, the insured mortgage cap is increasing to accommodate higher home prices. Let’s dive into the details with an example.
Example: $300,000 Mortgage with a 5-Year Fixed Rate of 4.29%
- 25-Year Amortization: Monthly payment is $1,631.94.
- 30-Year Amortization: Monthly payment reduces to $1,482.85.
Key Changes and Differences:
- Lower Monthly Payments:
- Monthly payment is $149 lower with the 30-year amortization.
- Interest Costs Over 5 Years:
- You’ll pay $1,001 more in interest over the first 5 years.
- Principal Paid Over 5 Years:
- You’ll pay $9,967 less toward the principal with the 30-year option.
- Overall Mortgage Term:
- The total mortgage repayment period increases by 5 years, meaning more interest costs in the long run.
- Higher Insurance Premiums:
- The mortgage insurer premium will be up to 0.75% higher with the 30-year amortization option.
- Increased Insured Mortgage Cap:
- The maximum purchase price for insured mortgages is increasing from $1 million to $1.5 million, making this option available to more homebuyers in high-priced markets.
Does This Option Make Sense for You?
The 30-year amortization provides lower monthly payments, which could help with cash flow. However, it also comes with trade-offs, including higher insurance premiums, slower equity growth, and increased long-term costs. The increased insured mortgage cap is great news for buyers in expensive housing markets, but it’s important to ensure this aligns with your financial goals.
Contact us today to learn more! We’ll help you navigate these changes and find the best solution for your family.