When the new HST was announced, many clients called me to ask questions about how they would be affected. I still have conversations with people who still unwittingly believe HST is applied to the purchase price of a home. So, to avoid similar confusion regarding the new mortgage regulations, I thought I would do my best to clarify the issue.
1) Reduce the maximum amortization period of a mortgage from 35 years down to 30 years.
2) Maximum advance on refinancing your home is reduced from 90% to 85%.
3) Government will no longer insure secured lines of credit (HELOC or home equity lines of credit)
By reducing the amortization, the government acknowledges that Canadians are paying too much money in interest payments. Going from 35 years down to 30 years will also allow Canadians to build more equity in their homes quicker and help pay off mortgages in a shorter period of time, thus giving Canadians more financial freedom in retirement. There will still be some non-bank lenders that will offer 35 year products, so altering the amortization period should not cause anyone to panic. Paying less interest on your mortgage should be your goal, but this regulation will not drastically affect those who are considereing a purchase in the near future. This regulation is to take effect on March 18, 2011.
By reducing the maximum advance on refinancing from 90% to 85%, the government is discouraging Canadians from using their homes as an ATM. As we saw with our friends in the states, many took out all the equity out of the house to buy cars, boats, vacations, etc.... and we know what happened to our southern neighbours. This is a great regulation to protect us from getting over our heads. The government has identified that Canadian personal debt is reaching critical levels and by rediucing the amount of money you can take out on your home will only encourage people to pay down their mortgage quicker. This regulation will also take effect on March 18, 2011.
Even thought the government will no longer secure these HELOCs, not many of us will be affected by this anyway. As consumers, we usually opt for the more traditional type mortgage making this regulation irrelevant to most of us. The first regulation, shortened amortization, will impact the majority, but that will only be a slight impact. With the government keeping the minimum down payment at 5% should keep home buying very attainable.
These changes have been instituted in attempts to reduce household debt and to change how Canadians have been refinancing their properties. There will still be many mortgage products available to the public once these regulations take effect. If you are considering buying a home or refinancing your current home, you may want to consult a mortgage specialist to examine all of your options.
If you would like to sit down and discuss this further to see how you may be affected, you can always drop by Century 21 Miller and ask for Sean Kavanagh. I would be more than happy to help.