New Mortgage Rules - Summer 2012

By Jason Bell
We received a number of calls, texts and e-mails from friends & clients today about the new mortgage changes released by the government and reported by the media. Here's a breakdown for anyone else who is wondering:

Jim Flaherty, Minister of Finance announced some changes to "government insured mortgages" that will take effect on July 9, 2012.
  1. The maximum amortization period was reduced from 30 years to 25 years
  2. The maximum amount Canadians can withdraw in refinancing their mortgages was lowered to 80 per cent from 85 per cent of the value of their homes
  3. The maximum gross debt service ratio was fixed at 39 per cent and the maximum total debt service ratio at 44 per cent; and the availability of government-backed insured mortgages was limited to homes with a purchase price of less than $1 million.
Confusing for many, Jim Flaherty says that Canadians that have at least 20% to put down (and therefore probably are well-off or have saved and shouldn't need a long-term loan) can still receive 35 year loans on conventional mortgages. The above restrictions apply to people who have less than 20% to put down and therefore require insurance on their mortgages.
What are the overall effects? The most expected is that there will be a mild cooling effect in regional real estate markets because from July 9th onwards, there will suddenly be fewer buyers who will be able to buy homes. Why? Reducing the amortization period (the amount of time you have to pay back a loan) from 30 years to 25 years increases your monthly payments. Some people simply cannot afford higher, monthly payments.
If there is any good news, it is that today’s announcement confirms Canadians will continue to be able to purchase a home with 5% down. (There was some worry that the government would require buyers to come up with at least 10% down.)
Mike Fisher on Jun 28, 2012 8:25 PM posted:
Thanks for clarifying, Jason. My father-in-law said that Flaherty and Harper did this to firm up the economy but you said the same thing my bank manager just told me today -- they are worried about housing activity slowing down now due to the new rules and maybe affecting the economy.

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