Recent Mortgage changes and how it affects you buying a home


The recent mortgage buzz in the news was due to some tightening of the mortgage industry's lending guidelines by the Federal Government that came into effect on July 9, 2012. How will it affect you? A couple of highlights....

1. They have changed the maximum amortization period to 25 years, from its existing 30 years. (just five years ago, there was 40 year amortization available!) Translated to dollars and cents, if you wanted to buy a house with a mortgage of $300,000, your payment is now calculated over 25 years (or 300 months) as opposed to 30 years (360 months). Your monthly payment will be somewhere around $160 more per month, depending on the interest rate ... but, on the upside you will be increasing the equity in your house quicker.

2. The guidelines about refinancing changed from the maximum amount of equity you could turn into cash from your house.... from 85% down to 80%. For example, say someone was looking to purchase a cottage. They had a home worth $500,000 and had a mortgage on it with an existing outstanding balance of $250,000. They could refinance their house today up to 80% or get an additional $150,0000 to buy the cottage. Before the new rules, an 85% refinance would have got them $175,000.

Other changes that were introduced involve debt service ratios and properties in excess of $1,000,000 - but the bottom line is that the Federal Government is putting in place these measures to support the long term stability of Canada's housing market. Which, from the reports, is doing well!

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Monique Kaetler

Monique Kaetler

CENTURY 21 Assurance Realty Ltd.
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