New 30 Year-Mortgage Amortizations: Planning Required, Financial Pros Say

Effective August 1, new 30-year mortgage amortizations are available for first-time home buyers purchasing newly built homes. For our August poll we asked tax and financial professionals if this is an option they’d recommend to their clients, and there was an interesting mix of votes, 66% said “no”, but 34% said they would – their comments provide great insight for homeowners who may be eligible for this program.

“This should be available for first time buys, newly built or not! Hopefully, with the additional years amortized, this lower monthly payment will allow them to save and pay a little more down from year to year! It is more important now than ever before in history! For our mortgage professionals to recommend and even connect their new home owners with financial advisors: and a tax professional!  The new amortization is a fantastic opportunity,  but as professionals we have an opportunity to make our home owner happy, healthy,  and successful with their new dream purchase!” - Ann Laurin

“That question should have also a Maybe choice since it depends so much on their age and ability to deal with debt. My personal recommendation, if it is feasible, to have an open mortgage with a by-weekly payment option as well as options to reduce the principal amount with periodic payments.” - Klaus Theyer

“How many first time homebuyers have ever purchased newly built homes in the first place?  When we bought our first home 30 years ago, all the new construction was large houses (more than we needed as a young newly-married couple starting out) on the edge of the city that we couldn’t afford in the first place.  I don’t know real estate markets intimately, but I don’t see that situation as having changed for the better from an affordability perspective.  Now, if there were homebuilders actually building smaller starter-type homes, then perhaps it might make sense for a few people if it really suited their circumstances.” - Derek T

“A 30 year term could be used as a temporary measure, to “get one’s foot in the door” of a home purchase.  At today’s interest rates, the 30 year term reduces mortgage payments by about 8%, while increasing total interest by about 24% over the entire 30-year period. But remember that in a few years the mortgage can be renewed on different terms, and the buyer can switch to a shorter amortization period at that time, as finances permit.  Also, with most mortgages, the buyer always has the option to increase payments as finances permit.” - Daniel

“I would never recommend to any one 30 year amortization period. Mortgage should be paid off as fast as one is able to do that.  Carrying debt into retirement age does not sound like a smart idea.  Do these mortgages have special, beneficial terms attached?” - Krystyna

“I would not recommend this option to my clients as even with a 30 year amortization - it does not significantly reduce the monthly mortgage payment as the additional interest cost will eat up most of the lower payment opportunity.  A 30 year amortization will only benefit the banks (more profit) and not really assist any first time home buyers. Now, bring back the 30 year mortgage WITHOUT the mortgage loan terms (ie: 5 years), and this may help the new home buyers - but the system right now only benefit the mortgage lenders and not the borrower.”

-  Gaetan Ladouceur

“I would not recommend this option as the best options are generally to pay the mortgage off in the least amount of time. When you extend the amortization period, especially to 30 years, the homeowner will end up paying double what the home actually costs.  That is a generalization as it depends on the actual interest rate.  However, if it is a lower interest rate, pay it off quicker.  If this cannot be done, perhaps the home is too much for now and waiting might be more beneficial in the long run. Open a FHSA and work on getting more funds for down payment to lower the amortization period.” - Robert

Thank you to all who participated, for our September poll we’re asking about taxpayer rights and audit defence:

“Are you concerned about taxpayer rights now that the Federal Government has proposed to expand CRA powers to requests for oaths and affidavits at audit and a new Notice for Non-Compliance with significant penalties attached? Tell us in the comments why or why not!” Weigh in!