Finance Minister Jim Flaherty has announced new mortgage regulations.
January 17, 2011
As many of you heard this morning on the news the changes about Mortgage market by Finance minister.
Here is a quick Update, stay tuned for updates on this topic.
This morning, Finance Minister Jim Flaherty has announced new mortgage regulations aimed at reducing Canadians’ soaring household debt.
Flaherty has unveiled three new rules:
(1) Mortgage amortization periods will be reduced to 30 years from 35 years.
(2) The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from 90 per cent.
(3) The government will withdraw its insurance backing (i.e. CMHC insurance)on lines of credit secured on homes, such as home equity lines of credit.
The new rules come on the heels of a Bank of Canada announcement that Canadians’ domestic debt burdens have hit record levels.
The change in amortization and refinance borrowing limits will go into effect on March 18, 2011 and the change in insurance on home equity lines of credit will go into effect on April 18, 2011.
The first change is likely to have the largest impact. Buyers who purchase a home with less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.
Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.
While Flaherty called the changes “moderate,” they did not include an increase to the five per cent minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week which would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consider a mortgage candidate. Currently, only 50 per cent must be included.
The ratio of household debt to disposable income has reached 147 per cent and household debt has reached $1.4 trillion.
The International Monetary Fund has called household debt the No. 1 risk to the Canadian economy.
Here is net impact of the first change a client with 90K income that could qualify for 415K with 5 % down, Now the same client will qualify for 397K, another way to look at it is that 4K more in income would be needed to qualify for 415K purchase price. THIS IS EFFECTIVE AS OF MARCH 18 for Mortgages and April 18 for Line of credit.
Here is the link to the official change: http://www.fin.gc.ca/n11/11-003-eng.asp
Action for realtor B2B partners: It is a good idea to touch all clients in pipeline to make sure their approvals are valid in their benefit.
If you need to run a quick scenario by me feel free to call at your convenience.
For more information on the regulations and their impact on our industry, please contact Vijay at firstname.lastname@example.org
From all economic indicators, it appears that higher interest rates are on the way in 2012.
What would your monthly payments be at current home prices in your neighborhood? Compare your options using CENTUM Mortgage Calculators.
Vijay Gandhi is an independent mortgage planner- industry insider & CENTUM Agent. If you are purchasing, refinancing or renewing your mortgage, contact Vijay or apply for a Mortgage Check-up to obtain the best available rates and terms.
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