When I am working with clients on their mortgage approvals there are several decisions they need to make. The questions differ a bit based on whether we are working on a purchase, a refinance, or a straight renewal.

We talk about amortization, term, and the specific mortgage product. These questions differ a bit based on what we are doing and the clients’ specific situation. Amortization refers to the total length of time required to pay your mortgage in full. Term refers

to the length of time you choose to lock into a specific rate.

Some of the decisions can be scripted if you are purchasing with less than twenty per cent down and your mortgage requires default insurance. These rules have recently changed (again situation specific) but length of term is up to the individual client.

Historically many people choose five year terms because lenders offer lower rates for this term. Over the last two years I’ve had far more people opt to pay a slightly higher interest rate and choose a three year term, gambling that rates will be lower then.

Over the last year specifically as home prices have risen at the same time as the cost of living has escalated I’ve had different conversations with clients about the amortization they choose. With the recent announcement of changes coming to maximum amortizations for new builds and first time home buyers it will be interesting to see how these discussions change over the

next few months.

For clients who were working on refinances or purchases with over twenty per cent down we had the option of extending to a thirty year amortization.

Some clients are resistant to stretching out the length of their mortgage and for solid reasons. Our parents’ generation was all about getting their mortgages paid off as soon as possible. This is obviously the choice that made the most sense and was more achievable for them and has been ingrained in many of us.

Our current reality is that home prices and cost of living have skyrocketed while wages have not kept pace. I’ve heard the argument that our parents were not enjoying a life style that included $6 coffees every day. Fair enough.

However, I have clients that live very frugally and are still struggling. Life happens. Divorce or separation happen. Devastating accidents or illness happen. Childcare bills escalate. Jobs are lost. Stuff happens.

Particularly when I am working with clients that are consolidating or buying at a significantly higher price point we have a thorough discussion comparing the difference in monthly payments for (usually) a twenty-five amortization versus a thirty year amortization.

Signing for a shorter amortization makes better sense for your long-term financial plan. However, if the higher payment causes you stress month after month and you end up in the same boat again a few years down the road the long term benefit is not there.

Every lender offers several ways to make extra payments against the principal of your mortgage. Interest rates will likely be different every time you renew your mortgage. Your income and bills change over time.

I will always be an advocate for paying your mortgage off sooner but many of my conversations with clients are pretty raw about the reality of making your payments every month.

The positive news is that rates have been trending down over the last month which will help provide a bit of relief. The better news is that by making thoughtful decisions around your choices for amortization and term you may help reduce your overall stress level.