Recently, the Canadian govt took action to cool the heating up real estate industry by decreasing the highest amortization time period from 40 to 25 years for Canadian Mortgage and Housing Cooperation (CMHC) insured houses. According to real estate and financial experts, this decrease was out of concern for Canadians overwhelmed with too much debt and a housing bubble.
This decrease in the amortization has not really cooled the real estate industry (in particular places such as Vancouver and Toronto). In fact, it is still hot, hot, hot! With the bank of Canada keeping a one-percent interest rate, it is still fueling the desire for owning a house for first-time customers and enabling others to trade-up on their current home. Traditionally in Canada, most mortgage conditions with banks are five-year closed. Remember, that the first two or three years, a house owner is mostly paying the interest on the mortgage. Now, there are possibilities to have one, or two-year mortgage conditions, but in most cases it is five year closed. As the five-year term gets near to renewal, banks give the house owner the opportunity to ‘shop around’ for better rates. On a side note, a house owner can ‘shop’ at at any time during the five-year term, but if the house owner goes the mortgage to another organization, they will have to pay penalty fees to the current bank, sometimes as much as $45,000. During the five-year term, property owners can be confident of how much they must set aside each month to cover their household costs, such as the mortgage. But, when it comes near to the term ending, it can become traumatic, especially if interest increase. Most people usually budget for their house and costs at the time of the house purchase; however, a lot can happen within the five-year time frame.