New Mortgage Rules Coming Your Way
Happy Canada Day! I hope you're enjoying a wonderful long weekend.
You may have heard that the Government of Canada has recently announced changes to government-backed insured mortgages. These new mortgage rules are expected to cool the housing market further and help Canadians manage their household debt. Whether these changes were necessary have led to some debate. What does that mean to you? For the most part, homeowners won't see much of a change except if you want to refinance your home.
New government-backed insured mortgages will have to follow the new rules once they come into effect on July 9, 2012. If you're hoping to get a new mortgage under the current rules, submit your paper work at least a few days in advance of the deadline. Some lenders are warning mortgage brokers to hand in paper work almost a week in advance to ensure applications are processed before the July 9 deadline.
In a little over a week, four changes will take place:
The maximum amortization period will be reduced to 25 years from 30 years.
If you're getting a new mortgage, expect to qualify for less and pay more on your monthly mortgage payments. This is the second time in two years that the government has targeted amortization periods. In 2011, the amortization period was reduced from 35 years to 30 years.
The maximum amount Canadians can borrow when refinancing will lower to 80 per cent of the value of their homes.
This option is often used for people who need access to a large amount of equity for big ticket projects like renovations. In 2011, the limit was lowered from 90% to 85% and now to 80%.
Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent.
Gross debt service looks at your monthly housing costs in comparison to your gross monthly income. The total debt service ratio looks at your entire monthly debt load compared to your gross monthly income. Both these ratios help you figure out how much home you can afford.
Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.
Borrowers purchasing homes over the new cap will be required to pay a down payment of 20% or more.
Keep in mind that these changes affect government-backed insured mortgages only. If you want to know more about your real estate market or are thinking of buying or selling your home, contact me and I'd be more than happy to help.