APPLY FOR YOUR MORTGAGE BEFORE MARCH 26, 2011 - "It can make the difference between a great place or even no place". Read on.
It's the first-time homebuyer who once again feels the pinch of new mortgage rules that restrict the amount one can borrow to buy a home.
"It's a big thing reducing that amortization from 35 to 30 [years]," said Calgary mortgage broker Mark Herman of Mortgage Alliance about rules introduced by Ottawa that take affect in 60 days.
Amortization was as lengthy as 40 years in 2008 before the government first cracked down. It had been 25 years for decades before this housing boom.
Mr. Herman, who says about 85% of his clients use 35-year amortization, calculates that based on a five-year fixed rate of 3.99% someone who earns $50,000 a year with a $1,200 annual property tax bill and a $100 monthly heating bill will soon just qualify for a $238,620 mortgage as opposed to $257,451 today.
"If you are a first-time homebuyer you are going to qualify for 8% less house," he said. "That 18 grand makes a big difference. It can be the difference between a great place or even no place."
The government moves, which include restrictions on home-equity lines of credit and refinancing, are expected to give the housing market an immediate short-term boost as consumers scramble to borrow ahead of a March 18 deadline.
"You got a boost when the changes are introduced and then you get a lull afterwards," said Pascal Gauthier, a senior economist with Toronto-Dominion Bank.
He suggests the changes to amortization will probably affect thousands of home sales, adding the deals may still get done but there will be an impact.
"They might look for a little bit less [house]," says Mr. Gauthier, "From our perspective, it doesn't change things a whole lot. At the margin, it will weaken the market for first-timers."
Another of the substantive changes that would allow consumers to refinance up to 85% of their home, down from 90%, will probably have a bigger impact on the condominium market, said Phil Soper, chief executive of Royal Le-Page Real Estate Services.
"The group hit most dramatically by these changes is the casual investor. These changes and the ones a year earlier have taken a lot of the potential out of the buy-and-flip [transaction]," said Mr. Soper, referring to rule changes in 2010 that forced condominium investors to have a minimum 20% down payment.
Mr. Soper said some people have gotten equity out their principle residences to buy second homes. "This doesn't put the brakes on too dramatically," he said.
A third change eliminates government insurance on non-amortizing home equity lines of credit. But Vince Gaetano, a principal with Monster Mortgage, said that should affect only a small segment of consumers.
"There were not that many people doing it, and if they were doing it, it was costing them a lot of money," said Mr. Gaetano, noting rates on HELOCs were traditionally higher than a conventional mortgage.
He applauded the rule changes because he believes too many people entered the housing market without understanding the true cost of home ownership.
"There is a big difference between renting and home ownership and the cost associated with it," said Mr. Gaetano. "It's unfair to put a young couple behind the eight-ball and scrambling to make do after all the costs associated with a home are incurred.
"Maybe this doesn't take people out of the market, but just makes them buy something more affordable."