The Minister of Finance announced earlier this week of changes to mortgage rules to take effect as soon as March 18th.
New Rule: The maximum amortization for all high ratio mortgages (less than 20% down payment) will be 30 years down from 35 years.
What does this mean? On a $100,000 mortgage at current 5-year fixed rates this means an increase of monthly payments of $34. Another way to look at this is if you could qualify for a $247,000 mortgage at 35 years you would qualify for a $228,000 mortgage at 30 years. For buyers on the edge for qualifying this means more money down is required (your own funds, gifted money, or cash back mortgage).
New Rule: The maximum value for refinancing your home will be 85% down from 90%.
What does this mean? Anyone with a mortgage up for renewal and you need to refinance for debt consolidation, renovation, investment - within the next 8 weeks - can take advantage of the current loan to value level. For those who purchased in the last few years who may want to maximize the current value for a further 5 year term this may be a good time to revisit your mortgage.
The above rules take effect March 18th.
New Rule: No insurance backing for home equity lines of credit.
What does this mean? Currently lenders will allow homeowners to access a home equity line of credit to 80% loan to value on their home. Only lenders that insure all their mortgages will be effected by this rule. Major banks and mortgage companies are not required to insure their mortgages. Therefore they may not be affected by this rule. However, it will be interesting to see how these lenders adapt to the rules and offer their lines of credits.
This new rule takes effect April 18th.
Overall, the changes will be like anything else - we will adapt, prices will adjust and may stabilize -life will resume. Remember 30 year amortizations were only introduced by CMHC in 2005 and 35 year amortizations in 2006.