As most people know, with the new regulations that took
effect last month maximum amortizations for
insured mortgages were reduced to 25 years. It is important to note that
this will apply to any mortgage where less than 20% is being used for the down
payment, but also for mortgages which are “bulk insured” (which basically means
that the lender is still insuring it, but they are paying the premium).
Some lenders are still offering 30 or even 35 year
amortizations on their uninsured mortgages. You may ask yourself – why would
someone want a 35 year amortization anyways?
One of the most common reason is for qualifying purposes. If
you were looking to qualify for a *$200,000 mortgage over 25 years, you would
need at least $42,000 in income. If you lengthen the amortization to 35 years,
you would only need approximately $36,000 in gross annual income. The key to
this strategy is to set your payments from the first payment as the same amount
as they would be with the 25 year amortization. You will then pay the exact
same amount of interest, to the penny.
With the guidelines around self-employed income and provability
of income tightening up so drastically, this can be a very useful tool for some
borrowers.
For information on this or to explore your mortgage options,
contact me today
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