Forget shorter amortization periods: One broker believes a mortgage grace period would be more beneficial for first-time buyers.
One broker believes maximum amortization limits should remain unchanged but that first-time buyers should be given the option to make interest-only payments for the first few years.
“I think the amortization should remain at 25 years, but I think first time home buyers should be allowed to pay interest only payments in the first five years, even on an insured mortgage,” Warren Ross of Mortgage Intelligence wrote MortgageBrokerNews.ca. “This will give first time home buyers the ability to furnish and renovate their homes without running up too much consumer debt.”
Ross expanded on his position by estimating that a homebuyer with a $250,000 mortgage could save $500 per month – and around $30,000 in total – in those first five years. He also considered a cash back component to ensure the saved funds are properly utilized.
“Perhaps a cash back component can be added with proof of (renovations) or furnishings,” Ross wrote. “Perhaps the combined rate of interest only on the mortgage and the cash back could be much lower than the current five per cent cash back rates that nobody can afford.”
However, payments would increase after that five-year grace period – and rates could fluctuate in that time – meaning clients would be required to be much more financially healthy for the remainder of the mortgage’s life to ensure they meet the increased payments.
The comment was sparked by a discussion around longer amortization periods for first-time homebuyers, a suggestion put forth by the Canadian Home Builders Association.
The Globe and Mail recently obtained government documents that show the CHBA had 61 meetings last month with officials and politicians to discuss proposals including longer amortization periods for first-time homebuyers.
“I think the amortization should remain at 25 years, but I think first time home buyers should be allowed to pay interest only payments in the first five years, even on an insured mortgage,” Warren Ross of Mortgage Intelligence wrote MortgageBrokerNews.ca. “This will give first time home buyers the ability to furnish and renovate their homes without running up too much consumer debt.”
Ross expanded on his position by estimating that a homebuyer with a $250,000 mortgage could save $500 per month – and around $30,000 in total – in those first five years. He also considered a cash back component to ensure the saved funds are properly utilized.
“Perhaps a cash back component can be added with proof of (renovations) or furnishings,” Ross wrote. “Perhaps the combined rate of interest only on the mortgage and the cash back could be much lower than the current five per cent cash back rates that nobody can afford.”
However, payments would increase after that five-year grace period – and rates could fluctuate in that time – meaning clients would be required to be much more financially healthy for the remainder of the mortgage’s life to ensure they meet the increased payments.
The comment was sparked by a discussion around longer amortization periods for first-time homebuyers, a suggestion put forth by the Canadian Home Builders Association.
The Globe and Mail recently obtained government documents that show the CHBA had 61 meetings last month with officials and politicians to discuss proposals including longer amortization periods for first-time homebuyers.
