Debts / Downpayment / Market Updates / Pre-Payment / Purchase / Qualifying / Rates & Terms / Refinance / Rental Properties

Important New Mortgage Rules taking affect July 9th

Ottawa announced new rules this morning that will affect mortgage applications submitted after July 9th, 2012. At this time, the new rules are only affecting insured mortgages, which is the case if you have less than a 20% downpayment. If you have any questions on how the new rules will affect you, contact The MortgageGirls and we will work with you to assess how these new rules impact your borrowing ability. This is a new and developing initiative so we will continue to comment as things develop, stay tuned…

Maximum Mortgage Amortization lowered from 30 years to 25 years
– Lowering the maximum amortization will reduce a borrowers qualifying power. With a longer amortization comes a lower payment, allowing the borrower to qualify for a higher purchase price.

You can only borrow up to 80% of your home value for a Mortgage Refinance, down from 85% of the home value
– Increasing the minimum required equity for a refinance discourages borrowers from using their home as an ATM and also allows a larger cushion for home value fluctuations while still leaving the home owner in a favorable equity position.

Lower maximum qualifying ratios
– Maximum allowable  mortgage payment, property taxes and heat amount is equal to less than 39% of their gross monthly income amount.

Maximum Purchase Price lowered to $1 Million
– Maximum Purchase Price for government backed mortgage insurance is $1 Million. Homes above a $1 Million purchase price must have a 20% downpayment.

The exact reasons are unknown, but we can speculate a couple of effects that the new mortgage rules were meant to have on our Canadian economy. Instead of raising interest rates, which may damage our already precariously perched economy or affect inflation greatly, the Bank of Canada has instead decided to specifically target the real estate market by implementing new mortgage rules. Tighter qualifying rules may encourage home owners to borrow responsibly allowing them to withstand changes in employment and home price market fluctuations. But with purchasers qualifying for less, we could see this turn into a red hot buyers’ market, encouraging home prices to come down to meet the buyers reduced pricing needs.
The good news is that these new mortgage rules are likely an indicator that The Bank of Canada intends to keep interest rates low for at least another year. In that time, we will see how these new changes affect our Canadian mortgage market and the outlying effects they have on other areas of the Canadian economy like unemployment rate, vacancy rates and home prices.

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