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.
The mortgage market continues to present a very narrow spread between fixed rates and variable rates and as a result, more and more consumers are leaning towards fixed rate mortgage decisions going forward, or at least that’s what the latest survey data would seem to be indicating.
RBC’s April, 2012 survey states that there are twice as many people now that are prepared to sign up for a fixed rate mortgage than a variable rate mortgage.
This follows CIBC’s March, 2012 survey that found half of all Canadians polled would select a fixed rate mortgage over a variable rate.
The longer the current market dynamics stay in place with respect to fixed and variable pricing spreads, the stronger the shift to fixed rates is also likely to be.
That being said, there are still a good portion of hard core variable rate borrowers who have taken advantage of lower variable rates for a long period of time who most likely will keep with their strategy until rates ultimately force them to rethink the approach. And its hard to argue with those that swear by variable rates as they have provided considerable savings for more than a decade now.
Fixed rates have some additional benefits to the overall market as well.
First of all, a movement to more fixed rate mortgages leaves the mortgage market as a whole less vulnerable to sudden rate increases where borrowers on tight incomes would not be able to cover off their mortgage payments or make significant enough adjustments in their spending quick enough to deal with a sudden and significant rate increase which is always possible.
Second, mortgage lenders actually have the potential to make more money with fixed term rates as compared to the razor thin margins that can be associated with variable rate products.
So a movement to fixed mortgage rates in many ways could be viewed as a win, win, win situation.
Time will tell how all of this will play out, but the recent trend is showing growing popularity in fixed rates and there is no reason right now to think that this trend will not continue to grow in the months ahead.
If you’d like to better understand your fixed rate versus variable mortgage rate options for a home purchase or a mortgage refinancing, We suggest that you give us a call and go through the available options with a member of our team.
Even though we have seen a number of changes in the last two years towards tightening up the mortgage qualifying rules both for new property purchase and mortgage refinancing, there is still further conversation being had by the powers that be that still further changes may be required to ensure the stability of both the housing and mortgage industries.
While the last set of mortgage rule changes appear to have slowed down the mortgage market somewhat, there are still those that believe the housing market is still overheated and fear that a housing bubble exists and will burst sometime in the near future.
The two areas of tightening currently being discussed is to increase the minimum deposit for insured mortgages from 5% to a higher amount, some where in the 7.5% to 10% range. It wasn’t that long ago when the minimum amount was zero, so bringing it now up to say 10% would have a significant impact on the housing market as a whole as first time home buyers are largely what drives housing sales.
The deposit issue definitely has its advocates and detractors. Regardless of what size of the fence you sit on, this would be a significant lever to pull which could force everything in the other direction, putting too great a damper on the market.
With respect to shortening the amortization period, the discussion has centered on reducing the maximum available amortization from 30 years to 25 years.
For new home buyers, the net effect of this move would be to reduce the amount of house they could afford as payments would now be higher under a shorter maximum amortization term.
The flip side of this is not to stifle choice of those that are financial stable but want to use amortization as a way of managing cash flow.
Its likely that an increase in the minimum deposit amount would generate the greater impact of the two, but both will create challenges in the market for both new home owners and long time home owners.
And with rates still at near record lows for variable and term mortgages, there are lots of things to consider these days when seeking mortgage financing.
This is why its more important than ever to seek the assistance of an experienced mortgage broker to help you navigate through all the mortgage rule changes that have already taken effect and that are being proposed.
Here’s a link to the article … oops. The article has since been removed by the Globe And Mail… If I locate it, I will update the link. Sorry for the inconvenience.
The article goes through the mortgage acquisition and procurement process through the eyes of a consumer who starts out looking for rates on the internet and ends up working with a mortgage broker to guide her through the process.
There is a lot of valuable information about mortgage hunting including different things you need to be thinking about including the considerations related to working directly through a mortgage lender or a mortgage broker.