Changes to Government Insurance Mortgages - how it can effect you!

On June 21, Finance Minister Jim Flaherty announced changes to government insured mortgages (default insured).  The intent of these 4 changes is to support the strength of the housing market and to help ensure that households do not become overextended.

The following information was supplied to me by Matt Maydanski, Mobile Mortgage Specialist, Royal Bank of Canada. 

4 changes to default insured mortgages:

  1. Lowering the maximum amount consumers can borrow when refinancing their mortgages. This change will lower the maximum mortgage amount to 80% of the appraised value of the property from the current 85%. This change will help to promote savings in homeownership and encourage homeowners to prudently manage borrowings against their homes.
  2. Reducing the maximum amortization period for new government insured (default insured) mortgages. The maximum amortization for all new default insured mortgages will be reduced to 25 years from the current 30 years. This change will help reduce total borrowing costs for consumers, helping them to build up equity more quickly and pay their mortgage off sooner.
  3. Introduce a maximum purchase price for default insured mortgages. This change will introduce a maximum purchase price of less than $1 million. This change ensures that government-backed mortgage insurance operates the way it was originally intended: to help working families and first-time homebuyers.
  4. Introduce exception limits for GDS and TDS ratios for default insured mortgages. This change will introduce a maximum GDS ratio of 39% and TDS ratio of 44% on an exception basis. This will assist in protecting clients who may be vulnerable to economic shocks or increases in interest rates.

The effective date of these changes is Monday, July 9th.

        Pre-July rules apply    New rules apply
Mortgage Insurance applications dated before June 22, 2012 with a binding purchase and sale agreement   x              
Mortgage Insurance applications date after June 22, 2012 and before July 9, 2012 with a binding purchase and sale agreement and a closing date before December 31, 2012 x              
Mortgage Insurance applications date after June 22, 2012 and before July 9, 2012 with a binding purchase and sale agreement and a closing date after December 31, 2012          x      
Mortgage Insurance applications taken after July 9, 2012.               x      
Pre-approved applications with no binding purchase and sale agreement in place outstanding as at July 9, 2012.          x  

I am passing this information on to everyone in the hopes that it provides a clearer understanding of the changes taking place as of July 9th.

Pin It