Mortgage Rules Changing Again!

Jeff Evans

Here we go again. The Office of the Superintendent of Financial Institutions had proposed new guidelines for mortgage underwriting back in March and final Residential Mortgage Underwriting Practices and Procedures were released to financial institutions today.

Along with these, the Department of Finance announced new mortgage rule changes in an effort to limit the debt Canadians are amassing and to cool the housing market. Four new changes will come into effect July 9, 2012.

Reduce the maximum amortization period to 25 years from 30 years.

By reducing the amortization period, people will face higher monthly payments, but are expected to be debt free faster.

An example of how this will affect Canadians was given by IMBA president, Albert Collu when speaking with “Reducing an amortization for a $300,000 mortgage at 3.29% from 30 years to 25 years is a difference of approximately $156,” said Collu.

Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes.

This move is trying to encourage homeowners to manage borrowings against their homes. For most homeowners, this change will not make a lot of difference.

Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent.

The two ratios mentioned are to determine affordability by CMHC. The gross debt service ratio looks at a person’s monthly housing costs in comparison to their gross monthly income. The total debt service ratio looks at a person’s entire monthly debt load compared to their gross monthly income. This ratio includes housing costs and all other debt payments like car loans and credit card payments.

Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.

Based on MLS data CMHC forecasted the national average resale price of a home to be $372,700 in 2012 and $383,600 in 2013. Borrowers purchasing $1 million homes will be required to pay a down payment of 20% or more.

There are still many mortgage options available for homeowners and buyers. Find out what mortgage products are right for you.


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