26 Apr Should You Apply for A 30-Year Mortgage?
Most mortgages in Canada are limited to a 25-year amortization period (the total life of a mortgage), and this is mainly because mortgages requiring CMCH insurance coverage have a 25-year maximum. However, 30-year mortgages do exist in Canada, but you’ll need to have a low-ratio mortgage that won’t be subject to long-term finances.
Longer amortization periods are not necessarily better, as while you may reduce your monthly payments, the overall interest amount you’ll be required to pay will increase. If you really want a 30-year mortgage, you’ll need to carefully consider your finances from your current perspective, as well as long-term.
Here’s a brief breakdown of high and low ratio mortgages to help you decide what mortgage term will best suit your circumstances:
Should you go high or low? High-ratio mortgages versus low-ratio mortgages:
With a down payment of less than 20% of the purchase price, a high-ratio mortgage illustrates the mortgage-to-property-value ratio: the smaller the down payment, the higher the ratio.
Requiring the borrower to pay for default insurance (CMCH insurance) which is mandated by law, a high-ratio mortgage restricts the borrower to a 25-year amortization period.
Requiring a down payment of at least 20%, a low-ratio mortgage costs you less in CMCH insurance premiums, and gives borrowers the opportunity to select an amortization period of up to 30 years.
How can you get a 30-year mortgage in Canada?
Firstly, you’ll need to save enough money to make your 20% down payment, and factor in the costs of purchasing a new home. Closing costs come in at between 1 and 5% of the total purchase price, depending on the property’s location.
Once you’ve saved enough money, you can begin searching for a home within your price range. Some mortgage companies have online calculators to help you determine your budget, or you can chat in person to a financial advisor.
Then, you’ll need to find a mortgage provider. Most offer non-insured 30-year mortgages, but you’ll still need help deciding which is the best one for you. Talking to a mortgage broker can help you get the best deal, as they can compare rates between many lenders, and may even have access to special deals not typically given directly to borrowers. Don’t forget that an initial consultation with a broker is free of charge.
So, if you think that a 30-year mortgage is best suited to your financial circumstances, remember that you’ll need at least a 20% deposit to avoid CMHC insurance, and the mortgage may cost you more over time, as well as requiring more money upfront.
To conclude
Think carefully about your options before you decide to commit to a 30-year mortgage, and seek professional advice and guidance to help you make the right decision.