The 40 year mortgage is dead.

As of October 15th, 2008 the government of Canada will no longer be guaranteeing 40 year mortgages in an effort to strengthen and protect the Canadian housing market.  Some of the rule changes are:

  • Fixing the maximum amortization period for new government-backed mortgages to 35 years;
  • Requiring a minimum down payment of five per cent for new government-backed mortgages;
  • Establishing a consistent minimum credit score requirement; and
  • Introducing new loan documentation standards.

Reducing the amortization period to 35 years from 40 years on a loan of $200,000 at 6 per cent interest would result in a $41 increase in the borrower's monthly payment. That borrower would save $49,000 in interest payments over the life of the loan.

What this means is that for borrowers who can come up with 5% down you will have to pay a slightly higher monthly payment.  It also means that first time home buyers wanting to break into the market will have a harder time once the rule passes as they will have to have a minimum 5% downpayment on top of spreading the payments over 35 years (max) instead of 40 years.

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