Finance Minister Jim Flaherty unveiled three new changes this morning to mortgage lending rules:
* Mortgage amortization periods will be reduced to 30 years from 35 years on insured mortgage loans
* The maximum amount Canadians can borrow to refinance their owner occupied property will be lowered to 85 percent from 90 percent.
* The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
The change in amortization and refinance borrowing limits will go into effect on March 18, 2011 and the change in insurance on home equity lines of credit will go into effect on April 18, 2011.
The first change is likely to have the largest impact. Buyers who purchase a home to owner occupy with less than 20 percent down payment are required to purchase government-backed mortgage insurance. Under the new rules, mortgages amortized longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.
While Flaherty called the changes "moderate," they did not include an increase to the five per cent minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week which would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consider a mortgage candidate. Currently, only 50 per cent must be included.
Why Jim Flaherty's mortgage rules won't hurt homebuyers
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