40 Year Amortizations and Zero Down Mortgages

I've had a number of my clients inquire recently about the 40 year amortization mortgage and zero down mortgages, and what the recent news about changes in government policy and mortgage insurance mean in the context of current real estate trends, particularly in BC and Alberta.

The first thing to remember is that the changes to the rules were relatively minor, reducing maximum amortizations only five years, from 40 to 35 years, and from 100% financing to 95% financing. While the changes do represent a significant policy initiative by the feds, it is more what they aren't doing rather than what they are doing that is significant to most investors in real estate.

So far the federal response to the credit crunch in the United States markets has been remarkably measured, considering the near hysteria across the border. There may still be some serious shakeups in the Canadian banking industry as a spill-over from the US problems, with Canadian chartered bank CIBC appearing to be in some potential trouble, although I suspect that CIBC will survive as an independant bank even after all of this is over.

The main thing that investors should consider is that real estate markets go up and down, but mostly they go up over the long run. In the short run this is not much comfort, especially for anyone committed to a property they have purchased at the top of the most recent hot markets. The changes to the purchase rules by the insurance companies, stricter credit rules or more stringent application of existing credit rule, may all have some impact on the markets by reducing market demand somewhat.

But my bet is that the reduction in market demand for housing will be "normal" in the Canadian sense of that word. In other words, be patient and the real estate market will eventually reward your patience.

If you panic, then you probably will get hurt, just as when you panic when swimming in the ocean.

If you are looking to acquire a property with nothing down, it might just be a little more difficult than previously, but that may also be a good thing if it means that people aren't going to get stuck with property they really can't afford.