CMHC OK’s interest-only and 35-year mortgages

Friday, June 30th, 2006

Jim Jamieson

The CMHC is making it easier for people close to qualifying for a mortgage to get into Greater Vancouver’s red-hot housing market.

The Canada Mortgage and Housing Corp. announced it is eliminating high-ratio mortgage insurance application fees and offering insurance for mortgages with longer amortizations and more flexible repayment options –including an interest-only product.

“I think it will open up financing to more people than would otherwise be able to get in the market,” said economist Helmut Pastrick of Credit Union Central of B.C.

“Certainly in high-cost markets like Vancouver, first-time buyers are having a more difficult time.”

The interest-only option is offered for up to the first 10 years on a 25-year mortgage. It’s available only to borrowers with good credit. For the final 15 years, the entire principal and interest must be paid.

Christina Pughe of Vancity Credit Union said there are sufficient safeguards to stop borrowers from getting in over their heads.

“Folks would still have to qualify for this mortgage as if it were amortized,” she said. “If you were just qualifying on an interest-only mortgage, you could get into a much bigger mortgage.”

Incomes normally rise over time, making a higher payment 10 years into a mortgage more manageable — although rising interest rates are a wild card, Pughe said.

Pastrick said rates aren’t expected to climb much in the next three to five years.

Interest-only loans have long been popular in the U.S. CMHC also introduced extended amortization periods of up to 35 years.


25 years 30 years 35 years

Monthly payment $1,215 $1,130 $1,075

Reduction in payment n/a $85 $140

Total interest $175,000 $217,000 $261,000

Source: CMHC (Assuming a $190,000 mortgage)

© The Vancouver Province 2006

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