Exploring Mortgage Amortization Extensions

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 hit pause on any rate hikes for the time being. 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. This month, we are focusing on 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.

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Sidebar: 2023 Fall Economic Statement: What You Need to Know 

Deputy Prime Minister and Minister of Finance, Chrystia Freeland, released the Fall Economic Statement on November 21, 2023. Here is an overview of key housing measures that may affect you: 

Making Housing More Affordable 

The federal government acknowledges the need for long-term housing solutions. To address short-term rentals, starting January 1, 2024, deductions for expenses related to short-term rentals may be denied in areas where they are prohibited. 

Underused Housing Tax (UHT) 

Introduced in 2022, UHT imposes a one percent tax on non-resident, non-Canadian owned vacant or underused residential real estate. Recent changes: 

• Excluded Owners: Certain Canadian entities may become excluded owners. 

• Penalty Reduction: Minimum penalties for late UHT filing have been lowered. 

• Extended Deadlines: The deadline for filing UHT returns for 2022 and 2023 has been extended to April 30, 2024. 

Canadian Mortgage Charter 

 A new Canadian Mortgage Charter is in the works to regulate financial institutions during elevated interest rates and financial stress.  

Key relief measures: 

• Temporary extensions of mortgage amortization periods. 

• Waiving fees for relief measures. 

• No requalification under the insured minimum qualifying rate when switching lenders. 

• Early contact before mortgage renewal. 

• Options for lump-sum payments or selling the principal residence without prepayment penalties. 

• No interest on interest during mortgage relief measures. 

These changes can impact your housing decisions. For personalized guidance or questions, reach out to me, your trusted mortgage broker.