30 Year Amortizations Make for Better Financial Planning | [Opinion]

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There has been a lot of talk in the last couple of days around the government regulators tightening mortgage rules even further. I started hearing social media chatter from the CAAMP 2013 Conference in Toronto, and then saw some articles published to that end in Globe and Mail and the Toronto star

It looks like 30 year amortizations might be removed altogether in Canada.

Now, you might have already thought that 30 year amortizations were completely gone, however the last changes in June of 2012 only affected 30 year amortizations on insured mortgages (less than 20% downpayment). Conventional ratio mortgages (those with a minimum downpayment of 20%) can still be amortized over 30 years... for now.

In an article by Rob McLister on the Globe and Mail, Julie Dickson, Chief Banking Regulator is quoted as saying...

“Borrowers need to understand what they’re getting themselves into... People need to think about the leverage [they’re] taking on.” Julie Dickson

Especially if a 30-year amortization is the only way they can afford their home... And I can agree with that.

The problem I have is, How does reducing amortizations on conventional ratio mortgages really impact consumer behavior when according to the latest CAAMP Annual State of the Mortgage Market in Canada...

During 2013, 38% of borrowers took steps to accelerate their repayment period, including increasing their payment amount, making a lump sum payment or increasing their payment frequency. Will Dunning

My Thoughts

Currently conventional mortgages can be qualified on a 30 year amortization. I believe if the government is to make changes, they should still allow Canadians the option of the 30 year amortization however qualify at the 25 year.

I believe that as part of a responsible financial plan, you should try to be responsible for as low of a monthly payment as possible, however used a scheduled payment increase to pay down your debt as fast as possible.

By taking on only a minimum monthly fixed payment and not burdening yourself with an unnecessarily high payment, you allow for life to happen. However the best plan of action is to accelerate your debt repayment by any means possible including scheduled payment increases. This will allow you to achieve your financial goals faster while still allowing for the unexpected.

References

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