I still get clients that are confused by the recent changes that the Federal Government made to mortgage rules. So here is my "Readers Digest" explanation.
1. Yes anyone can still buy a home for a minimum of 5% down. Plus there are a couple banks that will still do the zero down mortgage too, but you will pay a higher interest rate if you choose that route. Call me at 790-3620 if you have questions or want the name of a good mortgage person that will explain this to you in clear every day language.
2. Recently Federal Finance Minister Jim Flaherty announced changes to the rules of government-backed insured mortgages. What are government backed insured mortgages? These are mortgages that have mortgage insurance on them. If you bought a home and your down payment was less than 25%, you would have had to insure the mortgage by getting mortgage insurance so that if you, the buyer defaults on paying back the mortgage, the bank will get their money back (from CMHC - Canada Mortgage and Housing Corporation) that they lent to you to buy the property.
These rules were designed to ensure that homeowners don't risk their financial security by buying more than they can afford.
The following new mortgage rules came into effect on March 18, 2011:
1. Mortgage amortization periods reduced from 35 years to 30 years. This means, that your mortgage pay back time is calculated over 30 years maximum, and not 35 years which used to be the maximum. Not everyone takes the max amortization period. Either call your bank that holds your mortgage or look at your mortgage papers to see what amortization period you have. By paying back your mortgage sooner, you will be paying less interest on your mortgage in the long run. And you can keep dropping that time shorter each time you renew your mortgage term, whether it's 6 months, or an open term, or 1, 2, 3, 5 year etc.
2. The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90% to 85% of the value of their home. This means that if you have paid off some of your mortgage and have built up some equiity in your property (what you actually own) and you want to borrow some money from the bank to do whatever, the banks will have your property appraised and now will only give you 85% of the equity amount instead of the 90% they used to give you. Again, the government is saying that Canadians have too much debt and they are being cautious.
3. The last change is effective April 18th, 2011. The Federal Government will withdraw its insurance backing (Canada Mortgage and Housing Corporation) on lines of credit secured on homes, such as home equity lines of credit. This meant that if you borrowed money based on your equity in your home, the government/bank used to register this borrowed amount on your title so that they would get the money back if you sold your home and hadn't paid it all back yet. Now the government isn't doing this anymore so it's riskier for banks to lend you credit such as a line of credit, so in turn, it will be a bit harder for you to get a loan or line of credit.
I hope this answers some of your questions. If there is anything you would like to know about, please call me at 306.790.3620 or email me at Pauline@PaulineRelkey.com.