Recent inflation numbers indicate that inflation is slowing, and many economists are saying that the most recent drop in the inflation rate will give the Bank of Canada the slack that it needs to continue lowering their overnight rate. While this is a positive sign, it is not necessarily translating to relief in the cost of living. Many people are still seeking solutions to mitigate the effects of sky-high grocery prices and other goods on their finances. Let's take a look at one strategy that could prove to be the difference maker in providing the financial breathing room you need – mortgage amortization extensions.

To start, let us clarify what an amortization period is. It represents the duration it takes to fully pay off your mortgage through regular payments. An amortization extension, on the other hand, refers to any period beyond your initially qualified amortization.

Which Lenders and Banks Offer Amortization Extensions?

Prime lenders, who are federally regulated, typically do not offer amortization extensions beyond 30 years. However, if your current mortgage has a shorter amortization period (i.e.: 20 years), you can extend it when refinancing with them. Alternative mortgage lenders, often referred to as "non-bank" lenders, may offer extensions of 35 to 40 years, provided you have at least a 20% down payment or more than 20% equity built up.

Who Can Extend Their Mortgage and Why?

First-time home buyers are typically limited to a maximum amortization period of 25 to 30 years. Most put less than 20% down needing default mortgage insurance that restricts amortization to a maximum of 25 years. However, if they have 20% or more to put down, they can extend the amortization beyond 25 years.

In contrast, renewers may have the option to extend their amortization at the time of renewal. For example, they can go from 20 years back to 25 years or from 25 years back to 30 years to lower their monthly payments. Keep in mind that these options vary based on individual situations.

It is important to understand that extending your mortgage amortization outside of renewal would require refinancing, which may incur penalties and necessitate requalification at current rates. Nevertheless, refinancing can be a viable solution in certain circumstances. To explore your options fully, I recommend discussing your specific needs with me.

For Example ...

Imagine a young couple bought their first home 5 years ago with a $750,000 mortgage at 3.5% interest. They initially chose a 25-year amortization, making a monthly payment of $3,745. Now, at renewal, their balance is $635,000 with rates at 5.39%. They're considering extending their amortization to keep their monthly payment the same. Let's compare the numbers:

Amortization : Monthly Payment : Impact on monthly budget

20 : $4,409 : – $664

25 : $3,926  : – $181

30 : $3,622 : + $123

35 : $3,419 : + $326

40 : $3,278 : + $467

Please note that rates over 30 years are only available with subprime lending, are for illustration purposes only.

Extending your mortgage amortization can be an effective financial strategy, but as with any important financial decision, it is essential to weigh the risks and benefits carefully. If you have any questions or would like to explore your options further, please reach out to me.

As announced on September 16, 2024, the federal government is expanding eligibility for 30 year amortizations for insured mortgages to all first-time homebuyers and all purchasers of new builds, and increasing the $1 million price cap for insured mortgages to $1.5 million, effective December 15, 2024. Let’s break these down to understand what they mean.

Expanding 30-Year Mortgage Amortizations for First-Time Homebuyers and New Builds

To provide more flexibility for homebuyers, 30-year mortgage amortizations will be expanded to include all first-time homebuyers and those purchasing newly built homes. This initiative specifically applies to borrowers who require high loan-to-value mortgage insurance and must meet the following conditions:

• The total loan-to-value ratio must be 80% or higher; and
• The borrower must either be:
• 1. A first-time homebuyer, or
  2. Purchasing a newly constructed home.

Who Qualifies as a First-Time Homebuyer?

To qualify as a first-time homebuyer, the borrower must meet one of the following criteria:

• The borrower has never previously purchased a home.
• In the last four years, the borrower has not occupied a home as their principal residence that they, or their spouse/common-law partner, owned.
• The borrower has recently undergone a breakdown of a marriage or common-law relationship. This provision aligns with the Canada Revenue Agency's Home Buyers’ Plan rules.

What Qualifies as a Newly Constructed Home?

A home is considered newly constructed if it has not been previously occupied for residential purposes. This definition includes newly built condominiums, even if there has been an interim occupancy period prior to closing.

Increasing the Insured Mortgage Price Cap to $1.5 Million

The cap on property values eligible for insured mortgages will be increased from $1 million to $1.5 million, providing buyers in higher-priced markets greater access to insurance-backed mortgages. This measure applies to borrowers needing high loan-to-value mortgage insurance and requires that:

• The total loan-to-value ratio is 80% or higher;
• The value of the property securing the loan is less than $1.5 million; and
• The down payment must meet the following requirements:
• • 5% on the portion of the purchase price up to $500,000.
  • 10% on the portion between $500,000 and $1.5 million.

Important Dates and Additional Requirements

• Effective Date: These measures will apply to mortgage insurance applications submitted to lenders on or after December 15, 2024.
• Occupancy Requirement: These provisions only apply to high loan-to-value mortgages on homes occupied by the borrower or a close relative.
• Other Criteria: All existing eligibility criteria for government-backed mortgage insurance will remain in effect.

This expansion of eligibility and the increased price cap aim to make homeownership more attainable for first-time buyers and those investing in newly built properties, especially in competitive markets across Canada.

As always, reach out if you have any questions.

Recent data from Mortgage Professionals Canada shows that 23% of all Canadian mortgage holders will renew their mortgage within the next year, and a staggering 50% will renew within two years.

So chances are, you are looking at a mortgage renewal within the next two years and if not, unless you are in the enviable position of being able to pay off your mortgage at the end of your current term, a mortgage renewal will be on the horizon for you.

When it comes to renewing your mortgage, whether you’re looking to lower your  monthly payments, tap into home equity, or take advantage of the latest mortgage trends, preparing for your renewal can unlock new opportunities.

Here are a few tips to put yourself in the most advantageous position possible at renewal time: 

1. Start early. Begin by reaching out to me 4-6 months before your renewal date. We’ll review your current mortgage and start exploring options.It’s smart to get a 120-day rate hold so you’re protected against any rateincreases while we shop around or, perhaps we’ll explore a more flexiblesolution that fits your evolving financial goals.
2. Review your financial goals. Is your financial situation the same as when welast negotiated your mortgage? Whether you're planning to pay off your mortgagefaster or want to access home equity for renovations or investments, this isthe time to re-evaluate your priorities, and make any necessary adjustments toyour mortgage.
3. Consider variable rates. With the Bank of Canada’s recent rate cuts, and more expected, variable rate mortgages are regaining some of their former popularity. Many homeowners are turning to this option for potential cost savings. If you’ve been locked into a fixed-rate mortgage, it might be worth discussing a switch to a variable rate at renewal.
4. Leverage your home equity. If you've built up equity in your home, you can use this to consolidate debt, invest, or cover significant expenses like home renovations. Together we can explore options that allow you to access equity while keeping your payments manageable. Note: This option can also be explored outside of mortgage renewal time. If you want to discuss how you can leverage your home equity at any point during your mortgage term, get in touch for a review of your situation.
5. Shop around for the best rate. Don’t assume your current lender offers the best deal. Shopping around can help you secure a better interest rate or more favourable terms. Reach out and I can do the heavy lifting for you, comparing multiple lenders and options to find what suits you best.
6. Get pre-approved. If you're considering switching lenders or mortgage products, getting pre-approved ensures you're ready when it’s time to renew. Pre-approval locks in a rate, so you’re protected if rates rise.
7. Plan for the future. Your mortgage renewal is a great time to reassess your financial plans. Will you need a mortgage that's flexible with prepayment options, or are you focused on paying it off quickly? Plan with both short-term needs and long-term goals in mind.

Taking a proactive approach to your mortgage renewal could save you thousands of dollars and set you up for long-term financial success. I’m here to help you navigate the renewal process and find the best solution for your needs. If you have any questions or want personalized advice on your upcoming renewal, or any mortgage need, don’t hesitate to contact me. I’m here to make the process as smooth and stress-free as possible.