The Long Term Mortgage Strategy

by : Gregory Van Duyse

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

There are mortgages now available that permit mortgage brokers to find a mortgage that is even more personalized than ever. A new type of mortgage (prêt hypothecaire) has been available since the spring of 2006 that allows a longer repayment period of up to 35 years.

You may feel skeptical about taking out a longer amortized mortgage - prêt hypothécaire. It may not be the best idea for everyone.

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

But in certain cases, it is a good idea:

&bull Future income

many people are just about certain of receiving a significant increase in their future income, but they just haven't received it yet. For example:

- a spouse is in school, but will be finished soon
- a salary is based, according to a collective bargaining agreement, on years of service
- the income of a self employed individual has not yet appeared in his tax returns

&bull You want payment flexibility. - There are those who receive a weekly paycheck that does not stay the same from week to week, but one that changes. In such cases, they will want to keep their mortgage payments low for the periods when there is not a great deal of income. Examples of this would be people who work on commission, seasonal workers or the self employed. (prêt hypothecaire)

&bull Rental property may influence how you want to repay the mortgage. By keeping the rental income up (mortgage payments down) because your income is tax deductible, you can reinvest the proceeds instead of increasing the equity in the rental property.

You can actually shorten the paydown period of a home loan - hypothèque.

If you are afraid of being committed to a 25 or 35 year mortgage, you can pay it off earlier (you can do this with a 15 year mortgage as well).

There are many strategies that we introduce our clients to that allow them to pay down their mortgages earlier than the actual amortization maturity. Signing a 25 or 35 year mortgage note does not really mean that you have to pay the mortgage for 25 or 35 years. The document you sign is not what fixes the payoff term, but the amount and number of payments you make on the mortgage.

Therefore, if you can make early payments, you can lessen the period of amortization of the loan.
Lenders will permit you to make prepayments of your loan, within certain limitations. This allows you to increase the amount of payments you make on your home loan whenever you can. This can be done 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 payment 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 house 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 opts for the 35 year mortgage - prêt hypothecaire.

Two years later, his income 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, or a total of 24.4 years.

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


Extended periods of amortization are not for every borrower, but are marvelous mortgage (hypotheque) tools that we can use to personalize a mortgage strategy just for your needs.