40 Year Mortgages and 100% Financing No More

Posted on July 11, 2008 at 5:07 pm
Filed Under Financial Planning, Mortgage Planning

Earlier this week, the Department of Finance announced that they were going to put a halt on 40 year mortgages and 100% financing.

As is usually the case with a decision of this nature, many are wondering whether this will be a good or bad thing for both the end user and the economy. According to Pascal Gauthier, a TD Bank Economist, “The five-year reduction in amortizations is expected to have a minimal impact — but the 5% minimum down payment could cut into the number of first-time homebuyers in the market.” Clearly the biggest concern is will the economy suffer with fewer people being able to purchase a home who would have otherwise been forced to take advantage of the 100% financing option?

Your Take-Away: Although this decision could slow down the economy in terms of first time home buyers, I personally can’t help but agree with the direction the Department is heading. After all, the credit crisis we are seeing in the US is due in large part to the very liberal mortgage financing American banks were offering, and we all know how much of an impact that has had. We may see a slow down in new new home buyers jupming into the market and thus even new home starts, but I’d rather deal with that smaller pain now then the potentially devestating pain we could experience if we were to ever fall into the same traps that the US is currently dealing with.

The long and short, a 40 year mortgage is not tremendously more different or dangerous then a 35 year mortgage. However, I am confident that 100% financing can bring with it the potential of catastrophic results and I’m confident that this will be the right decision in the years to come.

Until next time, have a Wonderful Weekend!

Chris & Elisseos

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