Changes to Mortgage Rules
On January 17, 2011, the Government of Canada announced adjustments to the rules for government-backed insured mortgages. These changes are an effort to address concerns about the increasing levels of Canadian household debt. They are designed to ensure that homebuyers don’t risk their financial security by buying more than they can afford.
So what do these adjustments mean to the average homeowner?
Here’s a look at the new rules that were announced by Finance Minister Jim Flaherty:
Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
By reducing the amortization period for new high-ratio mortgages, monthly payments may be more, but Canadians will be able to decrease the amount of interest paid on their mortgages. According to Adrienne Warren, Senior Economist for the Bank of Nova Scotia, the impact of the change to amortization would be relatively modest, at about $100 more per month in carrying costs for an average home.
The new rule takes effect March 18, 2011 and will only affect people buying homes after this date. If you already have a mortgage (either a 35 or 40 year) you should be able to keep it through your renewals.
5% continues to be the minimum down payment.
Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 % from 90 % of the value of their homes.
This new rule is an attempt to promote “saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers”.
This rule also takes effect March 18, 2011
Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit (HELOCs).
According to a Globe and Mail interview with personal finance expert, Rob Carrick, there has been no indication of upcoming changes to how lenders do business. In theory though, by withdrawing government-backed insurance, lenders could start charging higher interest rates on new credit lines or create tougher qualifying requirements.
Home equity lines of credits have been growing in popularity as a borrowing tool and the Federal Government is attempting to slow the growth of this type of borrowing.
This rule takes effect April 18, 2011
No matter what situation you’re in, whether you are a current homeowner or are in the market for a new place, it’s a good idea to take a hard look at your finances and know where you’re money is going.
There are still many mortgage options for homebuyers. Do your research and talk to a Realtor or a mortgage broker to find out what your options are.