Mortgage Rules Have Changed, Eh?

Most buyers in today's economy require some sort of financing when purchasing a home. Down payments, interest rates, risk of job loss, and other factors play a big role in the average consumer's decision into home ownership. On January 17th, 2011 the Government of Canada announced there will be a few adjustments to government-backed secured mortgages to support the long-term stability of Canada's housing market. First we'll have a look at what these adjustments are, and then we'll look at how they will affect you. Jim Flaherty, Minister of Finance said the changes will "... [encourage] hard-working Canadian families to save by investing in their homes and future." Here are the changes:

  • Reduce maximum amortization period from 35 years to 30 years
  • Lower maximum amount homeowners can borrow in refinancing their mortgages from 90% to 85%
  • Withdraw government insurance backing on lines of credit secured by homes, such as Home Owner Lines of Credit (HELOC's)

Now let's look at how these changes might impact you. Reducing mortgages to 30 years from 35 years will have a slight impact on monthly payments. For example:

$100,000/35 years @ 3.75% interest = $427.91/month  $100,000/30 years @ 3.75% interest = $463.12/month

$200,000/35 years @ 3.75% interest = $855.81/month  $200,000/30 years @ 3.75% interest = $926.23/month

$300,000/35 years @ 3.75% interest = $1,283.72/month  $300,000/30 years @ 3.75% interest = $1,389.35/month

In short, for every $100,000 on a mortgage, payments will increase roughly $35 per month. Does this mean the changes are bad? No. Here's why! With the reduced years of a mortgage, homeowners will build equity quicker by paying less interest and pay off their mortgage before retirement. Lowering the re-financing availability will limit the re-shuffling of debt. Finally, the risk of consumer debt unrelated to house purchases will shift from taxpayers to lending institutions.

Some of you might still be looking at the simple matter that this means mortgage payments will increase and I understand that every dollar counts. Bear in mind, what seems the easy way out for the time being might not be in your best interest and if $35 a month scares you, you might want to re-consider whether you're ready for home-ownership. There are many different financing options when applying for a mortgage.

We all know there are constant complaints about interest rates, on anything! These changes help beat them. Take advantage.

Kelsey Ozeroff is with Century 21 Mountainview Realty Ltd.

Kelsey Ozeroff

Kelsey Ozeroff

CENTURY 21 Mountainview Realty Ltd.
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