Tougher Mortgage Regulations to curb household debt taking effect today.
New mortgage regulations shorten amortization period
On January 17, 2011, federal Finance Minister Jim Flaherty unveiled changes to Canada’s mortgage lending rules that would reduce the amortization period to 30 years for new government-backed insured mortgages. Changes were also introduced to make it more difficult for households to use their property to access financing.
Mr. Flaherty said mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years. Also, Mr. Flaherty lowered the maximum amount Canadians can borrow against the value of their homes on refinancing, down to 85% from the previous 90%.
New mortgage rules reduce amortization and increase limits for borrowing against equity
Changes to mortgage regulation will come into force in stages
The changes will come into force in stages, with adjustments on amortization and refinancing limits coming into force on March 18. In some cases, exceptions to the deadline would be allowed for financing agreements made before the March 18th date. When the new regulations were announced, Finance Minister Flaherty confirmed the minimum required down payment would remain unchanged at 5%.
Government concerned about record levels of household debt
These latest mortgage changes are in response to recent concerns expressed by the Bank of Canada about the record level of household debt currently being carried by Canadians, largely as a result of the near record low interest rates currently available. These tighter mortgage regulations mark the second changes in just under a year.
In February of last year, Mr. Flaherty toughened up mortgage rules to help support Canada’s housing market. The regulations introduced in 2010 required borrowers to qualify for a mortgage based on a five-year fixed-rate mortgage, regardless of whether the buyer planned on a shorter-term loan or more affordable mortgage rate. This helped to ensure that buyers would still be able to afford their payments as interest rates rose. Regulations were also introduced to reduce the amount Canadians could borrow on their home from 95%, down to the current 90% of their property value. In addition, buyers of income properties were required to put 20% down, versus the 5% down payment required for single family homes.
All these prudent measures were intended to keep the real estate market healthy and stable, and support the economy by preventing Canadians from becoming financially over-extended. The measures have been applauded throughout the financial industry both here and abroad, and are further evidence of the fact that the Canadian banking system is the envy of the world.
For further information you can review the Department of Finance Canada news release, or give us a call to discuss the impact these changes may have on the purchase of your next home.
About Brandon Buller
Husband. Dad. Award-winning Real Estate Broker and Luxury Property Specialist with the Buller Real Estate Group at Coldwell Banker Burnhill Realty based in Burlington, Ontario, Canada. Read my full bio.
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