The long term mortgage strategy - hypothèque

Do you think it is a good idea to take out a longer amortization mortgage, say 25, 30 or even 35 years?

There are mortgages now available that permit mortgage consultants to find a mortgage that is even more personalized than before. A new kind of mortgage (hypothèque) has been available since the spring of 2006 that allows a longer repayment period of up to 35 years.

You may feel uneasy about taking out a longer amortized home loan - prêt hypothecaire. It may not be the solution for everyone.

You feel you’d rather not pay off your mortgage as slowly as possible, and therefore raise your interest payments on the loan, but to arrange your payments to your best advantage. In most cases, people prefer a 15 to 20 year schedule.

Some cases, however, lend themselves to extending the mortgage payments:
• If you have some guarantee of higher income at a future date. Here are but a few cases of how this would occur:
-either you or your spouse is finishing school and will start working soon
-your salary is determined by a union or collective bargaining agreement that bases increases on years of service.
-you are self employed, but your income is not yet reflected on your tax returns, so you cannot prove income sufficient for a larger home loan payment.
• You prefer to be flexible in your payment schedule. Some workers, such as the self employed, seasonal workers, or those who work on a commission basis prefer to keep their mortgage payments down so they can cover the periods when their income is lower. (hypothèque)
• Rental Income – A property earns rental income which is tax deductible. The owners prefer to have more revenue each month to reinvest than to build equity in the property; this equity is not easily accessible.

Even if you have chosen a longer term mortgage, you can end up paying it off over a shorter term - prêt hypothecaire. You may not want to have a 25 or 35 year mortgage (or even a 15 year mortgage). We can find a strategy for you that will allow you to take advantage of the longer terms when it benefits you and then pay them off when you want to. You do not have to believe that you are committed to a 25 or 35 year loan just because you signed a mortgage note for that period. That piece of paper does not determine the actual term of the loan, the amount of payments that you make against the loan is what determines it.

Therefore, if you want to make early payments, you can lessen the period of amortization of the mortgage.
Lenders will allow you to make prepayments of your mortgage, within certain limitations. This allows you to increase the amount of payments you make on your mortgage whenever you want to. You can do this in two ways:
1. Make an increased monthly payment. Lenders will allow you to pay a larger amount on your mortgage by 20% per year and not be penalized.
2. Pay down on the principal. Many, if not most lenders will permit you to designate a certain additional part of your monthly mortgage as a principal payment, again, for up to 20% per year.

An actual example

Mr. A will complete his Master’s Degree in 9 months, which will increase his teaching salary. He decides to buy a home and he needs a $200,000 mortgage. The payments on a 25 year mortgage (at 5.4%) are $1,209.17 per month and on a 35 year mortgage are $1,053.18 per month. He decides upon the 35 year mortgage - prêt hypothécaire.

Two years later, his salary has increased by 20% and he decides to increase his mortgage payment by $200 per month ($1,253.18 per month). If he does not alter his payments any more, he will have finished paying off his home in 22.4 years from that date, for a total of 24.4 years.

There you are, mission accomplished!lower payments when he needed them!

What conclusion can we take from this?
Choosing an extended period home loan (prêt hypothecaire) amortization may not be for you, but this is one of the many tools that we can use to formulate a mortgage strategy that is just right for you.

Article Source: http://www.christiannotepad.com

Gregory is an Accredited Mortgage Professional (AMP). To get more information on Home Loans - pret hypothecaire, please visit: Hypotheque | Mortgage