Everyone in the mortgage world has been talking about the rule changes. I did post about them when they came out but now that we have had time to digest them a bit I wanted to talk about them a little.
So we now only have 25 years for amortization on high ratio mortgages, this means if you have less than 20% down you can only use 25 years to qualify. What does this mean to those who are planning to purchase.
You will qualify for less. For example, if you have an income of $75,000 with no debt you will qualify for approximately $50,000 less using 25 years. This only will be an issue when purchasing higher priced homes, what you will see though is an increase in the monthly mortgage payment.
For a mortgage of $500,000 at 3.09% for 5 years, your monthly payment with a 25 year amortization is $2389.39, this is an increase of $263.26 – the 30 year payment would be $2127.02.
Basically it works out to be $52.40 per $100,000 more.
Is this a bad thing, not necessary, it will make people plan a bit more before getting into a mortgage plus I truly believe in stepping stones and working your way up the property ladder, your first purchase is not going to be your dream home but a step towards that. I do not believe in being mortgage poor.
Food for thought: 5 years age 5 year fixed rates were 5.79%. Current 5 year rate, 3.09%. Mortgage $400,000 – payment is $598 cheaper. What do you think?