It’s not exactly big news anymore that Federal Finance Minister Jim Flaherty announced tighter mortgage rules. But it is still possible that you’re not entirely clear as to what those changes are, and what they mean for the market. So we thought we’d provide you with a quick rundown.
On Monday, January 17th, Flaherty unveiled three main changes that will impact both buyers and current homeowners who require mortgage default insurance provided by the Canadian Mortgage and Housing Corporation (CMHC) to purchase or refinance their homes as follows:
1) The maximum amortization period for a government-insured mortgage was lowered from the 35 to 30 years.
2) The maximum amount Canadians can borrow in refinancing their mortgages was adjusted from 90 per cent to 85 per cent.
3) Ottawa’s insurance backing on home equity lines of credit, or HELOCs, was withdrawn.
The numbers and reductions seem daunting at first, but with these changes in place, we can actually look forward to further stabilizing the market long-term.
If you have a down payment that is 20 per cent or more than the purchase price of your home, you can still have access to a 35-year amortization. But note, though longer amortization periods appear beneficial, they greatly increase the interest paid over the life of a mortgage. A 30-year amortization will save you a few pennies in the long run.
For first-time homebuyers, no change to the required minimum payment was announced, which creates a nice balance between preventing over-borrowing and real home ownership aspirations.
And lastly, the reduction in the amount that can be borrowed against home equity should ensure that Canadians retain more equity in their homes. And that’s never a bad thing.
For a more detailed discussion around the new mortgage rules, take a look at this excellent article from the Globe and Mail. Or speak to your mortgage professional.
The adjustments to the mortgage insurance guarantee framework will come into effect on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will take effect April 18, 2011.