With yesterday’s announcement changing the maximum mortgage length from 35 to 30 years, you might be asking how much mortgage can I afford? As The Globe and Mail pointed out, if someone bought a home at the average Canadian resale price of $344,551 at a 4% interest rate and a 5% down payment, a 35-year mortgage would have monthly payments of $1,441. However, the new maximum amortization period of 30 years increases the monthly payment by 8%, which would now be $1,555 a month.
So while the 5 year difference in the maximum amortization length shouldn’t be a deal breaker, it will force people to pay off their house sooner. Some fringe buyers will be forced out of the market though, since this will increase their debt service ratio and could be the difference between qualifying for the mortgage or not. If your concerned that these changes will effect how much mortgage you can afford, consider these two ideas to increase your down payment and reduce the amount you’ll need to borrow:
Home Buyers Plan
One way to make your home more affordable is through the Home Buyers’ Plan, which allows you to borrow $25,000 from your RRSP to put towards your down payment. Your spouse can also withdraw $25,000 from their RRSP as well. So if you both have saved up enough in your RRSPs, this can be a great way to come up with $50,000 to add to your down payment and reduce your mortgage.
Another great way to save up a down payment is to use your TFSA, which now provides $15,000 in contribution room, $30,000 if you have a spouse that’s also saving up towards your new house.
The new mortgage rules that the CMHC announced will certainly make it more difficult for some to set a mortgage, but if you put together a decent down payment with one (or both) of the ideas above, you can qualify for a mortgage and pay it off sooner!