For example, a borrower with a mortgage of $355,712.78 (purchase price $363,000 with five per cent down payment) with 5.25 per cent interest rate and a 25 year amortization period  would pay approximately $2,111.54 monthly. By extending the amortization to 35 years that same borrower would only have to pay approximately $1,839.37 monthly.

Amortization is a means of paying out a predetermined sum (the principal) plus interest over a fixed period of time, so that the principal is completely eliminated by the end of the term.

The two national mortgage insurers have the following programs:
Genworth is offering extended amortizations on purchases, refinances, and on their 100 per cent financing program. For a 30 year amortization, add .2 per cent to the premium and for a 35 year amortization - add .4 per cent.

CMHC is also offering a 30 year amortization - on a pilot program that is running for a four month period with an additional .2 per cent premium (till early June- but odds are it will be extended). Their extended am product is available on purchase transactions, and not on their 100 per cent financing product - the Flex Down. If you are considering this new strategy, bear in mind… No matter how appealing the lower monthly payments look, don’t forget that you have to pay off what you borrow, so the longer the amortization period, the more the interest you will be paying on that loan.  But if it means that it will make the difference between being a renter or an owner it is a winning strategy as long as you can try to deploy the following tactics:Make bi-weekly accelerated payments; By making payments every two weeks you can shave off 6.58 years off the mortgage: On a $355,712.78 mortgage that is a savings of  $91,014.83.Odds are your income will not remain static over the next 35 years- so neither should your mortgage strategy.  Every participating lender will allow for mortgage pre-payment privileges of 15 to 20 per cent per year. 

While you may not have that much extra money to put toward the mortgage every month or year if your income goes up by getting a raise or a  better paying job, you should consider allotting some of that benefit to paying down the mortgage if possible.  Any lump sum that is applied over and above a regular payment is applied directly against the mortgage principal, which could again save you thousands of dollars and years off the mortgage.  If you think putting lump sum payments may not happen, increase your monthly mortgage payment instead, or as well, as it will be automatic and seem less daunting.

Once you have decided to become a homeowner you have crossed over to becoming a saver/investor.  Most individuals who have the clear goal of improving their financial outlook do it with deliberate actions.  Becoming a homeowner often has that affect on individuals as you now have a larger mortgage payment than paying rent you and are doing it with the deliberate strategy to invest in your own future net worth.  Look at your monthly budget to see if you can find ways to save funds from changes in behaviors to allow for the mortgage payments- Such as bringing lunches to work rather then going out. Rent a DVD rather then going to the theatre.  There are usually a few ways you can reevaluate your spending priorities for the long term benefit of home ownership.

In a prosperous province such as Alberta the benefits can be great!  Homeowners get to have the benefits of leverage. That is the  increased real estate price growth on the whole house or asset not just on the amount you invested- for example  Ten years ago a client bought a house for $130,000 with a ten per cent down payment ($13,000).  The house is now worth $415,000.  That is over a 3000 per cent return on investment on the initial $13,000 investment. (Sure there were mortgage payments and taxes- but they had to pay to live somewhere- if not mortgage payments they would have had to pay rent) The best part is the tax-free profits.  If you buy the home as your principal residence and if you were to sell it after some time any equity growth is tax free money.  There are no capital gains on primary residence profits.

As every current Albertan knows our economy is booming and so is our housing market.  Numerous people are moving to Alberta every month building up demand for housing and the supply of available housing is decreasing thus driving up prices.  This should continue for many years making home investment a low risk investment with high returns.

It is now easier than ever to get approved for a mortgage and it is also easier for more “challenged” applicants to access non conventional forms of financing.  Making the decision to become a homeowner is the first step- If you need to be creative to make it happen I believe the tactics you have to take in the short term could definitely pay off with great dividends in the future.  Once you have the home with the longer amortization program it will be up to you if it will become a financial fiasco or winning strategy.

If you would like to receive my special report: “The 7 costly financing mistakes most first time homebuyers make and how to avoid them” email me at .(JavaScript must be enabled to view this email address) and I will be happy to send it to you.  NL