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Mortgage terms tightened

Myles Dolphin
Northern News Services
Published Wednesday, June 27, 2012

A federal government decision to reduce the maximum amortization period for a government-insured loan to 25 years from 30 is a tough but necessary measure, say local realtors.

Finance Minister Jim Flaherty made the announcement on Thursday, marking the third time in the past four years that the Harper government has adjusted the maximum period.

Until 2008, homeowners could repay mortgages over the span of 40 years.

Ryan Sawatzky, owner of a Property Guys franchise in Yellowknife, sees the move as a way of ensuring more financial responsibility.

"Some people are so focused on finding a house that they don't look at the repercussions," he said.

"We want to make sure people are able to pay off their mortgages. It's good medicine that ensures homeowners will have more equity in their pockets."

Yellowknife property prices may be high but the NWT has the highest average weekly earnings in Canada - $1,257 as of Nov. 2011 - and prospective buyers here are unlikely to be fazed by the change.

"Yellowknife is a pretty affluent place, so it won't affect people here as much as it will in other provinces," Sawatzky said.

For example, while $350,000 can buy you a 1,520-square-foot family home with a 7,000 square-foot lot in Yellowknife, the same amount would only get you a 653-square-foot condo apartment in Vancouver.

Over the course of a month, the owner of a 25-year, $350,000 mortgage saves roughly $170 more than someone who has a 30-year mortgage. An insignificant amount to some, perhaps but the difference is considerable over the span of many years. In terms of interest rates, the costs would be reduced by almost $47,000.

Jacqueline Rocher, a realtor with Coldwell Banker, believes that first-time buyers may be a little scared away by the decision but that ultimately, determined buyers won't hesitate to purchase a home.

"It's a good thing for people to wait and make sure they're financially ready to buy a home," she said.

"People can save more and decrease their monthly payments. They'll be more established and more credible buyers. At the end of the day, if you really want a home, you're going to buy it."

The new rules are scheduled to take effect on July 9.

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