Mortgage Rule Tightening Continues
“Mortgage Rule Changes Zero In On Amortization And Equity”
Last week, the Federal Government was back at it with new changes to Canadian mortgage requirements that are scheduled to come into effect by July 9, 2012.
This will mark the third major or significant change to mortgage regulations since 2008 with the last changes occurring just last year in 2011.
This time around, the focus is on reducing the amortization period from 30 years down to 25 years on government insured mortgages as well as reducing the amount that you can borrow against your home equity from 85% down to 80%.
There are estimates out in the market that in 2011, 40% of new mortgages were amortized over 30 years so this type of reduction to the available amortization period is going to likely have a significant impact on the market.
The main reasons given for these new rule changes are the increasing levels of household debt and the overheating of housing prices in certain markets, most specifically in Toronto.
Staying on the insured mortgage theme, the rules governing Canada Mortgage And Housing Corporation or CMHC, were also tightened whereby a borrowers total mortgage payments, or gross debt servicing ratio, cannot exceed 39% of total gross income. And total debt payments, or total debt servicing as a percentage of gross income, cannot be higher than 44%.
Mortgage insurance will no longer be available on mortgage requirements for homes greater than $1,000,000, which means that for higher value properties, the buyers are going to have to come up with a down payment of at least 20% to be considered for mortgage financing.
In the long run, these changes will see mortgages paid off faster and consumers saving on interest costs.
But in the short term there is going to need to be considerable movement away from non mortgage debt otherwise its going to be difficult for individuals to qualify for the lower cost forms of financing and mortgage insurance products.
And with mortgage refinancing actions effectively capped now at 80% of the property value, there are fewer lower cost mortgage options for refinancing existing debt into a home equity loan as well.
With the rule changes coming into effect in just a few weeks from now, its going to be important to clearly understand how any of these changes may impact your own mortgage situation or one that you are considering entering into.
For more information on these changes and to get expert assistance in working through different potential mortgage scenarios, I recommend that you give me a call so we can go through your situation together and get all your questions answered right away.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel