On Monday, January 17, 2011, Jim Flaherty, Minister of Finance announced three new mortgage rules aimed at reducing some of the risk in the Canadian mortgage market after mounting concerns over rising consumer debt levels in Canada.
First, the maximum amortization period for a government-insured mortgage was lowered from 35 to 30 years. What this means is that a typical $300,000 mortgage with a 5% interest rate will see monthly payments increase by $97.00 per month from $1,504 (35 year amortization) to $1,601 (30 year amortization) and result in a total $55,404 interest savings over the life of the mortgage. This rule is effective March 18, 2011.
The second change will lower the maximum amount Canadians can borrow in refinancing their mortgages to 85% from 90% of the value of their homes. What this means for the consumer is that a typical home valued at $300,000 will allow a homeowner to access up to $255,000 at the new 85% loan-to-value ratio, while previously they would have been able to get up to $270,000 at the 90% rate. The changes will also take effect on March 18, 2011.
The final change will withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers. This new rule will take effect on April 18, 2011.