Clock Running Out on 35-year Amortizations

Hourglass and house real estate conceptIn less than 20 business days, 35-year amortizations and 90% loan-to-value refinances will disappear from the high-ratio insured mortgage market. (See: New Mortgage Rules Now Official.)

Well-qualified borrowers will then notice a big jump in mortgage rates for high-ratio 35-year amz and 90% LTV refis. That’s because they’ll only be available on pricey uninsured mortgages after March 17.

If you’re thinking of applying for either of the above, do it soon to ensure you’ve got a firm lender (and insurer) approval before the deadline.

Remember, if you want to refinance a prime mortgage to 90% LTV and/or get a high-ratio 35-year amortization, you need a written commitment from a lender by March 17.

If you’re purchasing, you also need a signed purchase agreement dated before March 18.

Different lenders may have different policies so ask your mortgage advisor for details.

Rob McLister, CMT

  1. It’s interesting to compare what’s happening regards interest rates, as they relate to mortgages, in different parts of the world.
    For example in the UK 90% LTV is almost impossible to come by and it is the major reason why the housing market has stalled completely.
    First time buyers are needing 30-40% deposits which for the vast majority is a complete non-starter. As a result very little is selling as most chains relate back to the first time buyers.
    Refinancing to 90% LTV is a non starter also. I always like to keep abreast of matters in North America as it usually has a bearing on what follows in the UK…to some extent.

  2. Hi Brian,
    That’s a good question and one that comes up a lot. At renewal, folks can generally keep existing 35-year amortizations as long as the loan amount, amortization, and loan-to-value don’t increase.

  3. You speak of “chains” which thankfully is a UK phenomenon that has not afflicted us Canadians.
    Although I’m a born and raised Scot myself, I don’t think down payments are your biggest concern in the UK when gazumping and gazundering crash so many otherwise bonifide deals – effectively collapsing the entire chain.
    In Canada, every deal is binding under our laws, so we have no concept of “chains”. One small Colonial benefit I guess…. Sandy

  4. By taking away 35 year amortizations the government is effectively regulating the price of houses. I don’t know many taxpayers who want the government knocking 5-10% off the price of their homes. The Finance department has overstepped its bounds in a big way.

  5. It was the government who created the 5-35 extend and pretend mortgage, so I don’t think that argument makes much sense. If you take the government or CMHC to be exact out of the equation the banks would be acting very differently.

  6. The government hasn’t taken away 35 year amortizations. They just quit insuring them. The norm for government insurance on mortgages was 25 year amortizations; longer ams are a fairly recent experiment that is getting unwound.
    It’s hard to claim the finance department has overstepped its bounds when all they did was withdraw a government service that was only around for a few years. You can still get longer than 30 year ams if you can negotiate it with your lender.
    Don’t be surprised to see 20% down, 25 year ams in the coming decade, back to the original standard that stood for decades.

  7. Every homeowning taxpayer who wants to sell their existing home and purchase a larger, more expensive property would be happy to see less pricey homes.
    Every 1st time homebuyer has the same perspective.
    And the others had previously seen their home price increase by this same amount when the CMHC moved from 30 to 35 yr mortgages

  8. Dave,
    That would be an exageration.
    Less than 3% of mortgages each year are from first-time home buyers.
    Moreover, price increases for move-up buyers are offset by income gains over the long-run.
    Most people do not want cheaper homes. The real estate wealth effect enjoyed by the majority of Canadian homeowners has a far greater economic impact than the purchasing ability (or inability) of cash-strapped buyers. It’s silly even to compare the two.

  9. By that logic we should cut back speed limits from 100 km/h to 80 km/h. That would save lives right?
    Obviously the government doesn’t do that because taking away freedoms has a cost. It’s not speed itself that kills. It’s speeding too fast for conditions that kills. The principal is no different with mortgage amortizations. When misused they are bad news. When someone uses them responsibly they realize an economic benefit with no threat to anyone else.

  10. And people can still borrow responsibly with greater than 30 year ams, they just don’t have Canadian taxpayers insuring them.

  11. Silly?
    Well, I guess that is par for the course with some of the other adjectives I’ve heard
    “Shallow” analysis, compensating for my “shortcomings”, a “turner-ite”, etc, etc.
    Having gone to Oxford and achieved an international standing in my profession I naively thought I was slightly beyond silly and and shallow analysis to compensate for me shortcomings. But I guess self knowledge is truly elusive! )))
    Time for me to move on.

  12. I’m a new homeowner with very little knowledge in the mortgage industry. I purchased my house in December 09 with a 35 year mortgage with the minimum amount down (5%). I’m paying bi weekly which means I will have paid off my mortgage in 29 years or so. I’ve upped my payment recently so the mortgage will be paid off in 19 years. My question is in 4 years time when I’m up for a renewal if I don’t have 85% LTD will I be able to refinance without any problems? Upon refinance so I have to pay anymore CMHC?

  13. Hi Cam,
    As long as you don’t move your mortgage to a new lender, you won’t have any issues. If you aren’t increasing the loan amount, a new lender may allow you to switch to them as your mortgage will already be “on the books” with CMHC.
    The big one to remember is that you likely won’t be able to increase the mortgage (refinance). Keeping the mortgage amount the same, you will probably have some options unless something drastic happens. Make sure you make your payments on time so you don’t run into issues upon renewal!

  14. Thanks Kyle,
    Because I’ve upped my payments to pay off my mortgage faster I believe I will be at or just below the 85% LTD at my maturity date (Dec 2014). What does this do for me other than saving on interest in the long run to hit this magic 85% number? Also you talk about refinancing, why would I ever want to refinance the mortgage after 5 years when my term is up?

  15. The 85% LTV number matters only if you are refinancing.
    If you increase the mortgage amount or amortization or loan-to-value OR change to a readvanceable mortgage, then you will need to refinance.
    If you don’t do any of these things, most lenders will accept your existing CMHC-insured mortgage with no hassle even if the amortization is above 30 years. This assumes you qualify of course.

  16. kline, your response doesn’t really have anything to do with what I said. If the government stated that speed limits should be dropped, then they would be imposing a restriction on you. Changing the terms of mortgage insurance offered by the government isn’t imposing a restriction, since you can still negotiate for a 35 year am with your lender. Nothing has been banned.

  17. To: Concerned Canadian
    My point is that it’s foolish for the government to create rules that permit mortgage flexibility and then yank it away from everyone a few years later for no good reason. Our market needs legislative consistency, not some politicians who get scared every time they read the words “risky mortgages” in the National Post.
    I am in full support of restricting amortizations for higher risk borrowers. For everyone else who pays their bills on time, they should have the right to 40 year amortizations as long as they pose no risk to taxpayers.
    On your 2nd point, banks have plenty of incentive on their own not to make bad loans. They don’t underwrite bad mortgages just because they’re insured. I read an article here that listed all the reasons why. It is worth looking up.

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