I've heard from a few people recently who seem a little shocked at the appearance of 35 and 40-year mortgage amortizations. When in fact, this kind of thing isn't new at all. People were saying the same kinds of things when amortization periods increased from 7 years (yes, 7!) to 10 and then 15 years before hitting 25, where they've been for quite awhile.
But the reality is that this is how homes remain affordable while prices keep going up - not just home prices, but the prices of everything.
Back in 1962, my parents bought their first home for under $20,000 and amortized over 7 years. And in 1967, Dad bought a brand new Chevrolet Impala for $3,300!
Can you imagine getting a *mortgage* for only $15,000? It seems ridiculous by today's standards - heck, many people carry a balance like that on their credit cards today. Today, that might be considered for a car loan, and you'd have a hard time getting a loan period (amortization) for longer than 3-4 years!
If you had a mortgage of $420,000, simply by changing from a 25 to a 40 year amortization, that reduces your monthly payment by $335/month! That's a significant reduction on your monthly bills and still allows you to live in your dream house.
Granted there are pros and cons to longer vs. shorter amortizations but whether we're talking 25-40 year or 10-25 year, it's a debate that's been going on for many, many years. There's no right answer - but rather, which is right for *you*.
In Japan, because their house prices are far higher than ours, mortgage amortizations of 100 years are commonplace there. But they weren't always that long.
It's just part of the continuing changes to keep things like real estate and cars affordable.
At our office, we have an in-house mortgage broker, SGH Mortgages Inc. You can talk with either Steve King or Rob Mason and quickly determine both what you can afford and what kind of mortgage is right for you. They're great guys and very helpful. 1-905-619-9500.
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