New Mortgage Rules in Effect

Ottawa is changing mortgage rules again to make it more difficult for Canadians with limited savings to buy homes, or obtain loans.

As of June 21, 2012, these are the new changes to mortgage rules:

#1)  The amortization period on a mortgage will be dropped from the current 30 years to 25 years.
The amortization period is the estimated number of years it will take to pay off your mortgage entirely. The longer your amortization is, the lower your mortgage payments will be, but the higher the total amount of interest you'll pay over the life of the mortgage

#2) The government is limiting refinancing loans to 80 per cent of the value of a home, from the current 85 per cent.

#3) You will need to have a 20% down payment to purchase a home worth more than $1 million or have to seek private insurance.

View the CBC News report on the new mortgage changes.

New Mortgage Rules

Changes to the rules for mortgage lending received a lot of press in the past week. However, these changes won't affect most borrowers significantly.
The March 18, 2011 changes are really phase three of a gradual return to what I would call normal mortgage lending rules. In the “old days” - like 10 years ago - home buyers needed a minimum 10% down payment, they needed to pay for CMHC mortgage insurance in order to protect their lender if they had a down payment smaller than 25%, and they had to pay off the mortgage within 25 years. Even after the most recent changes, a home can be purchased with 5% down and paid for over 30 years. No wise person would amortize over more than 30 years, but you can still do that if you have made more than 20% as a down payment. If you are refinancing an existing home, you can still borrow up to 85% of its value, although down from the previous 90%. The third change – effective April 18, 2011 - is going to make lenders more cautious, because it removes the government insurance protection on home equity-backed lines of credit. These have been a fabulous business building tool for banks and credit unions, as well as a convenience for homeowners. This change simply means that the bank or credit union will have to be more careful to make sure you can repay them, because CMHC is no longer guaranteeing it.


as reported in The Viewpoint of the Clearsight Investment Program