Question

What is a Canadian Mortgage? The September 2020 update on house prices, states that the average price of a house in Windsor is $430,000. A family has saved 5% of this amount that is required to make a down payment for an average home. If the current posted rate is 3% would you recommend a family with a monthly income of $5000 buy a house? The Canadian Housing Mortgage Corporation recommends that the cost of a mortgage should not exceed 35% of your monthly income.

Answer 1

A mortgage is a loan to buy a home. Interest is charged on the amount you borrow (aka the principal) and each mortgage payment consists of repayment of the principal, plus interest.In Canada, it’s expected that potential home buyers should be able to pay 20% of the total cost of the house upfront. That being said you can still qualify for a mortgage with as little as 5% saved. It’s important that you speak with a financial advisor who can help you determine a realistic budget for your house, so that you can start saving for a down payment.

The mortgage amortization period, on the other hand, is the length of time it will take you to pay off your entire mortgage. Over the course of your amoritization period, you'll sign multiple mortgage contracts. Most maximum amortization periods in Canada are 25 years. Longer amortization periods reduce your monthly payments, as you are paying your mortgage off over a greater number of years. However, you will pay more interest over the life of the mortgage.

Maximum amortization Period:

As of March 2020, the maximum amortization period on all CMHC insured homes is 25 years. This became low in June 2012, when the federal government announced the maximum amortization period on CMHC insured homes would be reduced from 30 to 25 years. CMHC insurance is required on all home purchases with a down payment of 20% or less. Therefore, if you are putting more than 20% down on your purchase, some lenders may accept an amortization period of greater than 30 years.

Prior to this, on March 18th 2011, the maximum amortization on CMHC insured mortgages was reduced from 35 to 30 years.

For solving the problem we consider a 25 years repayment period.