There's a lot of talk lately about non-traditional, customized, private, long-amortization and what-have-you mortgages and what that might mean for the Canadian Real Esate market and Economy given what is presently occuring in the United States. So, is there anything to worry about? Do these new ways of financing homes provide wider opportunities for people who wouldn't otherwise be able to won property... and is that ultimately beneficial for them? Who knows?
Well, for one, not me. The real problem with many of these newer and rickier mortgaging options is in relation to the consumer who they are given to. A 30 or 35 year amortization on a mortgage could be a great opportunity for a potential home buyer who wants to get into a larger home than they could otherwise afford... saving them the cost of moving again (boo from all us Realtors ;o) and still providing the opportunity to increase payments later on when income has risen of money is available to shorten that amortization. But, on teh other hand, if the consumer just keeps blindly paying the minimum payments they risk spending thousands and thousands of dollars that they simply can't see. So is a longer amortization good for some - yes, if they are disciplined and able to manage their debt in a way that will ultimately pay it off faster than the initial amortization period. If they aren't disciplined in this way, then it may not ultimately be to their benefit.
And this same logic holds true of the other forms of non-traditional mortgages available as well. Essentially, under teh right circumstances, applied correctly and managed responsibly, most of these options provide a tremendous wealth of options to consumers who may not fit the bank's idea of a good risk, but who should still be able to afford to buy a home. However, if these other forms of mortgages are used to subsidize unreasonable lifestyle choices... well then, look-out, because that's a fire that you, or the entire country doesn't want to be playing with. Just ask some of our American friends about that.... it's fun on the way up - but the trip down is inevitably ugly!
So if you are thinking about getting a non-traditional mortgage, then make sure you talk to a financial advisor first, someone who will look at your entire financial profile and give you unbiased advice about what you can afford, how you can best minimize your expenses, what variety of options you have available to you and so on. And ask yourself why you are considering it? Is it to buy that house that's really just too expensive for you to afford based on what you're earning and likely to earn? Or is it because it will help you acheive something important faster, that you will be able to off-set in the near future making it more reasonable and less expensive in the end? One of these ways might make sense, the other almost never does...
All the best,
Stephen Hodge - Hodgeslodges.ca