Is the 35 year amortization a Bait and Switch scheme for many?

See video

There is a certain amount of marketing and buyer psychology taking affect with recent mortgage default insurance rule changes.   One of those rule changes is the 35 year amortization is gone.  The maximum amortization is now 30 years.

When something is being taken away, or if it is seen as a "last chance to buy"- for some there is a compulsive need to have a rarity.

Before you jump into a 35 year amortization because it is GOING SOON!.......consider how you intend on making those mortgage payments.

Is this really your last chance to buy?   If your are buying the higher priced home with the longest amortization because you absolutely need the 35 year amortization to buy now.  Ok, I see your point.   If you anticipate other debt reduction or your income going up soon, and your spending limit with a 35 year amortizaiton allows you to buy the home you would have bought in the near future...go for the 35 year amortization.

If you are qualifying at a 35 year amortization, and see no signifciant decline in other debt or increase in income soon- be careful.  In five years, just a 0.60% increase in rate will be almost the same as a 30 year amortization payment taken today.

So much for the preaching part.   What's this about the 35 year amortization for someone who can afford a 30 year amortizaiton but just can't resist getting a rare, going soon 35 year amortization.

The video example uses a $400,000 house price with 5% down.  A 35 year amortization will create a $1728 per month payment.  Most people are talked into an accelarated bi-weekly payment.  That's half the monthly payment paid every two weeks.   So, $864 is paid every two weeks.   That's the same as paying $1872 per month.

A $1872 per month payment is a 29.75 year amortization.


What's the bottom line?   The default insurance premium on this example for 35 years amortization is $11,970 which is usually added to the mortgage amount.   If you took a 30 year amortization and paid a REGULAR bi-weekly to keep that thirty year amortization, your default insurance premium would be $11,210.    That's a savings of $760....plus the interest paid on that $760 higher mortgage starting balance.

So, do you really need that 35 year amortization to qualify; or, are you rushing to get something that is being taken away...and paying a higher cost than necessary?