Prevalence of 35yr Amortization Mortgages – “If I’m going to lend you money for 3%, why would you ever want to pay me back?”

In light of the new mortgage laws there has been discussion regarding how restrictive the move to insuring only 30 year amortization mortgages would be, and, in a related vein, how prevalent 35 year amortizations had been in the past.

joycer at vancouvercondo.info January 18th, 2011 at 9:55 amLast time I was talking with a Mortgage Broker (from Dominion Lending about 2 years ago) they told me they try to get ALL of their clients to take the 35 year amortization. Why? Well more flexibility of course. They tried to explain it like if you take out a 35 year amortization you can always accelerate the payments to make it a 25 year amortization. If you happen to need more money that month, then you pay at the 35 yr amm rate. They also said “If I’m going to lend you money for 3%, why would you ever want to pay me back? Back in the 80s when rates were double digits it made sense to put as much money into your mortgage as possible and pay it off quickly, but not at today’s rates.” To be fair he was hinting at the fact that you could put your money to work elsewhere for a better return rather than tie it all up in paying off your mortgage. The point is though he was advising all of his clients to use the 35 year option… I also assume the commission is higher since the banks would make more over the life of a 35yr vs 25yr amortization but he didn’t mention any of that.

4SlicesofCheese at vancouvercondo.info January 18th, 2011 at 2:32 pm“Last March, I went in to CIBC to get pre approved before house hunting in Vancouver, this was before I actually did research and found [vancouvercondo.info], my “mortgage specialist” did not even suggest anything but 35 year amortization. He even did a printout for me of three different scenarios of different down-payments or different house costs variations. But always kept the same amortization at 35 years. Seems like he wanted me to get the lowest payment possible. He also suggested I get in before the April 19 deadline. Thank god I did some research.”

T at VREAA 18 Jan 2011 7:07pm“I just bought a house and was quite surprised at how forcefully the 35 year mortgage was pushed by our broker. I went with a 25 year motgage and would have gone with a 10 if the bank would have let me. At any rate, I am pretty sure that my husband and I can have it payed off in just over 5 years if we don’t go on any big spending sprees. We are no longer in Vancouver though. As some of you may recall, we relocated to Fort Nelson.”

4 responses to “Prevalence of 35yr Amortization Mortgages – “If I’m going to lend you money for 3%, why would you ever want to pay me back?”

  1. “To be fair he was hinting at the fact that you could put your money to work elsewhere for a better return rather than tie it all up in paying off your mortgage”
    true to a point – the cost of financing is still the same be it 25 or 35 years. if you can beat the 3%, why not use the extra to earn it.

  2. Fred, I like how you say “if” you can beat the 3%. Most people can’t, but use this statement for bragging rights to imply they have knowhow in investing. Therefore, it does make sense for the average person to pay off their mortgage as fast as possible. By the way, average mortgage rates hover between 3%-6%.

    • Depends on how people perceive the mortgage. As a “forced savings plan” or as an “investment” then they want to stretch it out probably and “toy” with the rest of the money (yes, I know, most won’t).

      Meanwhile: If you’re buying a home for your family, most people would be well advised to pay it of as quickly as possible, like any credit purchase.

      Considering that most people don’t even seem to be able to understand percentages the rule of thumb should be: Pay it off as quickly as possible.

  3. I have always been in the “pay it off as quickly as possible” camp. I am not a financially savy investor but I do think that if you are buying a home as a primary residence, then you should strive to pay it off as fast as possible. If the only housing cost you have to pay is taxes and maintenance it frees up a lot of your income every month. When you enter your retirement years it will create low cost housing for you. Isn’t that really the point to owning? So that when you are living on a small retirement income you won’t have to pay rent?

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