Jim Flaherty & Canadian Government Rolls Out New Mortgage Rules
New Mortgage Rules May Affect Toronto Housing Market & Others Like It
In Ottawa on Wednesday June 20th, Jim Flaherty announced that the Canadian Government will be making changes to mortgage policies yet again to battle the high levels of household debt currently held by Canadians effective July 9, 2012.
Flaherty announced that Ottawa will reduce the maximum amortization period from 30 years to 25 years for government-insured mortgages and homeowners will now be allowed to refinance their property to a maximum of 80 per cent of the equity, rather than 85 per cent as had been previously permissible.
The news caught banks and mortgage brokers off guard, but most would agree that the changes will bring more good to the Canadian population than bad.
30 Year Amortization Still Available, But Not To Those Who Want It
There are many Canadian homeowners and new mortgage seekers who understand these changes to completely eliminate mortgages with a 30-year amortization, but that is not the case. Flaherty and the Canadian Government are simply restricting government-insured mortgages (CHMC) to 25-years or less. Essentially, this means that any mortgage seeker with at least a 20% downpayment will still have access to a 30-year amortization as CMHC insurance is not required on mortgages with a loan-to-value (LTV) of 80% or less. While a 30-year product is still available to conventional LTV mortgages, most clients with a 20% downpayment would likely have the means necessary to amortize over 25-years.
By eliminating the ability for government-insured mortgages to be extended over a 30-year period, the government is taking measures to avoid any possible housing crisis similar to what the United States experienced back in 2007 and is still recovering from.
Refinancing Up to 80% of the Equity in Your Home
The second big lending change involved equity take-outs and home equity line of credit loans. Homeowners could borrow up to 85% of the equity in their home, but new regulations effective July 9th will limit equity take-outs to an 80% loan-to-value.
This change is designed to limit homeowners from over-extending themselves and losing the equity which has been created from what many would consider to be their greatest asset. Although 5% is still a decrease, it will not affect many homeowners looking to borrow at lower rates using their property as a security.
Take the Time to Save for Your Downpayment
These new mortgage and lending policies will not affect a large percentage of Canadians and for those who are affected, will encourage them to take the time and save for a downpayment before jumping into the housing market. Although a mortgage seeker may meet the current gross and total debt ratios required by legislation, many monthly expenses are not included in these calculations and can lead to problems making ends meet.
If you are currently interested in arranging a mortgage for a new home purchase, a renewal, or you’re looking to refinance your current mortgage, be sure to contact Home Mortgage Ontario to discuss your options! We can find you a product which is right for you and at the best rates available!
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