The proposed changes are going to focus in on qualifications for mortgage insurance and the maximum mortgage amortization period that can be offered.
These changes are scheduled to become official and actively applied by July 9, 2012.
Starting with mortgage amortization, the maximum length of time will be reduced to 25 years from 30 years.
In 2008, the amortization period was reduced from 40 years to 35 years, and from 35 years to 30 years in 2011.
With different market estimates showing 40% of new mortgage amortizations last year being at the 30 year mark, the new change will likely have a significant impact going forward.
The rest of the proposed changes were centered around mortgage insurance rules.
First of all, home equity financing through a residential mortgage is going to be reduced from 85% to 80%.
This will further reduce the ability of households to increase borrowing for other purposes including debt consolidation of non mortgage debts.
Second, the qualifications for mortgage insurance will be tightened up with mortgage payments being limited to 39% of gross income and total debt payments limited to 44% of gross income.
Third, mortgage amounts greater than $1.0M will no longer be able to secure mortgage insurance which will result in borrowers seeking to properties in excess of a $1,000,000 to have a down payment of at least 20% to complete the transaction.
The two main reasons for the changes are the growing average household debt levels and the overheated housing market in certain locales…Toronto specifically mentioned.
This further tightening of mortgage rules continues to extend the message to Canadians that overall debt levels need to be reduced and than lower cost funding will not be as readily available for equity withdrawals from real estate holdings.
With only a few weeks before the new rules come into effect, there could be a flurry of activity in some markets.
First time home buyers will be the most impacted by the changes as they are the ones that primarily require mortgage insurance to acquire a home.
That being said, the amortization term will have a broad impact as well and will cause many home owners to re look at their financing and spending plans for the years to come.
If you would like to know more about these proposed mortgage rule changes, please give us a call and a member of of our team will make sure you get all your questions answered right away.