Re/max Patricia Livingstone

New Mortgage Rules Delivered           

 

As anticipated the Canadian government came forth this past weekend with new mortgage conditions. These conditions are similar to those implemented last year in the spring which is to slow down both the housing and refinancing market. The move made by the Canadian Finance department was done to prevent ourselves from purchasing properties which may be feasible now but problematic in years to come when interest rates trend back upwards. Below are the three major new rules proposed by the Canadian government this month. The exact details as to whether existing mortgage pre-approvals will be grandfathered beyond the specific dates are still unknown.

1. Re-financing – before the Canadian government implemented new mortgage rules in the spring of 2010, you were able to refinance up to 95% of the value of your home.  For example if you had a house worth $400,000, you used to be able to pull out equity to $380,000. That amount was dropped to 90% in April 2010 and the new rules have it set so you are only capable of utilizing 85% of the value of your home. So now, on a $400,000 home, you are now only capable of refinancing up to $340,000. This rule will help prevent home owners from pulling too much equity out of their home and potentially creating negative equity if prices drop slightly. This rule is expected to take effect March 18, 2011.
2. Amortization – during the height of the housing market, obtaining a 40 year amortization on a mortgage was easy even with no down payment. The new rules imply if you make a smaller than 20% down payment you are not able to obtain an amortization of more than 30 years. This does both affect the amount someone can qualify and the size of the mortgage payments. The pro’s of creating a shorter amortization include the ability to pay off your mortgage quicker with less interest paid but the con’s are it will affect homebuyers cash flow and ability to afford a larger mortgage. This rule is also expected to take effect March 18, 2011.
3. Home Equity Lines of Credit (HELOC) – the ability to use the equity in your home to help consolidate debt, purchase large consumer items or renovate your existing home have now become a little tougher. The Government is now unwilling to back HELOC’s like they have in the past. The result of this is there will be fewer mortgage lenders willing to set up a HELOC based on the fact they will now been unable to insure this portion of the mortgage through Canadian Mortgage and Housing Corporation (CMHC). This rule is expected to take effect April 18, 2011.