The changes will take effect on July 9, 2012. Before then it’s important your clients know what these changes will mean to them and their mortgage.
Here are the four major changes Flaherty is making to mortgage rules:
1. Less Refinancing
The maximum refinancing amount will be reduced from 85 to 80%.
2. Shorter Amortization
The maximum amortization period will drop from 30 to 25 years.
3. Smaller Debt Ratio
The gross debt service ratio will be brought to 39% and total debt service ratio to 44%.
4. Mortgage Insurance Changes
The availability of government-backed mortgage insurance will be restricted to homes with a value of $1 million or less.
This could mean less money in hand for your clients. For example, if they have a $400,000 mortgage, by simply changing amortization from 30 years to 25 years mortgage it will cost $208 more a month for them to service that debt.
Also, clients thinking of refinancing should take into account that they will only be able to borrow 80 per cent of their house value after July 9th, compared to 85 per cent now. This means on a house worth $600,000 homeowners would have access to $30,000 less after July 9th.