35 year amortization mortgage

What Is The Mortgage Qualifying Rate (MQR)?

The mortgage qualifying rate is used to qualify all variable mortgages and fixed mortgages of 1-4 year term. The Bank of Canada updates the mortgage qualifying rate (MQR) every Monday at 12:01am.  5 year fixed or longer fixed terms qualify using the contract rate (the actual borrowing rate).  Here is an explanation:

Mortgage Qualifying Rate Example

Assumptions

  • Household income: $100,000
  • Assume 20% downpayment
  • Freehold home, no condo fees
  • 5 year fixed mortgage 3.19% amortized over 30 years
  • 5 year variable mortgage at prime - 0.5% amortized over 30 years
  • Mortgage qualifying rate (MQR): 4.99%

Maximum fixed mortgage: $577,000 (Purchase price: $721,250) Maximum variable mortgage: $466,000 (Purchase price: $582,500)

One way to increase the purchase power of a variable or fixed mortgage is obtain a 35 year amortized mortgage. Once the homeowner takes possession of the home, they can set the payment at the 30 year amortization level to avoid paying additional interest over the life of the mortgage.

To find out what you qualify for and a have a winning strategy for bidding wars, please contact Nawar.

Is Toronto's Real Estate Affordable?

Sold over asking, bidding war, multiple offers, over asking....These expressions are synonymous with Toronto's real estate.  The latest RBC affordability index report came out in November 2013 which shows eroding affordability in the city:

  • Bungalows: 55.6%
  • 2 Storey: 63.7%
  • Condos: 33.8%

What do these numbers mean?  The affordability index is based on 25% downpayment at 5 year fixed mortgage rate amortized over 25 years.  The percentages mean the following: To buy a bungalow, 55.6% of one's pre-tax income is required to cover the mortgage, property tax and utility costs.  Assuming homeowner's tax bracket is 40%, this leaves 4.6% (100%-55.6%-40%) to cover the costs of food, transportation, entertainment, emergency and any child care costs.  Clearly in Toronto, 2 incomes are required to afford detached and bungalow homes.  On the other hand, condos continue to be affordable.  Single income homeowner (100%-33.8%-40%) would have 26.2% of their income to cover living costs.  This is one reason why the condo market continues to be stable in Toronto.

How To Get Into Toronto's Hot Real Estate Market

Yes, there is hope and options to get into the market.  Here are some to consider:

30 & 35 Year Amortization Mortgages

For conventional mortgages (20% or more downpayment), 30 & 35 year amortization mortgages are available.  Lower monthly payments would make the home more affordable, however planning for renewing into a higher interest rate environment is important.  An extended amortization mortgage backed by the inflation hedge mortgage strategy is a sound financial approach.

Basement Rental Suite

Renting the basement has its pros and cons. Offsetting homeownership costs is a benefit and makes the home more affordable, however some aren't comfortable with someone living in the same house due to noise concerns and/or loss of space. Basement rental income can range from $750-$1400 depending on location and condition.

Legalizing Basement Rental Apartments

Buying A Home? Buy A Duplex

Combining both options is a possibility for frustrated homebuyers who are tired of losing bidding wars.  To discuss your mortgage options and strategies, please contact Nawar.

Home Buyers Videos Guide - Nawar Naji Toronto Mortgage Broker