Monday, June 9, 2008

CMHC freedom day

Notice how when offering as an incentive they disclose how little money you are putting towards principal.

"Remember 95% of your payments in your first year could be interest"

Marketers are creative with numbers! This inspired me to look at the 40 year mortgage more creatively myself.

With a 5% rate and 40 year amortization 14% of your payment goes toward repaying your debt in the first year. Not quit as depressing as the ad would imply. Leave it to me for some positive spin.

How much do you pay off in the first year? $805 for each $100,000 owed as shown below.

The first two charts neglected CMHC fees. From the last post we determined that with a 40 year mortgage and 5% down you need to tack on 3.35% to the loan amount. While the last generation celebrated being mortgage free, we can aspire to "CMHC freedom day". That is the day to celebrate paying off the CMHC premium portion of the balance. This happens on month 46 as illustrated in the chart below.


Anonymous said...

don't worry, the house will increase by at least 5% in the first year so you will actually make money...

...of course that doesn't help with the monthly cash flow does it?

Anonymous said...

What if you do refinancing of your mortgage (with house appraisal)? Does it reset you to year first situation (maximum interest proportion) or bank adjust interest proportion in some way?

Anonymous said...

And what else would be interesting on this topic it is the 1st year interest difference between 25/40 years amortisation.

BearClaw said...

The amount of interest you pay depends on the length of amortization.

So when refinancing i guess it depends if you "re-amortize". Is that a word? - I am not a mortgage expert. Otherwise you will continue to pay less interest over time.

Here is an old post comparing 25/40 year mortgages

Anonymous said...

Well, you cannot expect something else in a 40 year mortage plan. In such a long period it is quite normal for mortage to pay off so difficult.
As a Toronto real estate agent but as a regular citizen I would't take up somthing that long. But still, it will be interesting to follow the developemnet in this area, with the growing inflation and simmilar factors contibuting to the whole.