Mortgage Rule Changes January, 2011
Posted by Jeff Campbell on Wednesday, January 19th, 2011 at 9:56am.
January 17, 2011 Federal Finance Minister Jim Flaherty announced 3 changes:
1. The maximum number of years the government will back a mortgage was lowered from 35 years to 30 years. The maximum used to be 40 and was lowered to 35 a year ago. Previously the long time standard was 25.
o Change will take effect March 18th.
2. The maximum that Canadians can refinance their home is lowered from 90% to 85%.
o Change will take effect March 18th.
3. Government insurance backing on home equity lines of credit, or HELOCs, has been removed.
o Change for Heloc’s no longer being insured will take effect April 18th.
The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.
There was a proposal that would have required 100% of condo fees to be included in GDS & TDS ratio calculations however the current rule remains at 50%.
The 5% down payment still exists as does the 0% down – surprisingly – but for how long?
Detailed Numbers
In regards to rule #1:
. On a standard $250,000 mortgage, at today’s discounted mortgage broker rates of 3.99% for a 5 year fixed mortgage payments increase from $1100 a month for the 35 year amortization to $1187 a month for the 30 year amortization. An increase of $87 a month or $1,044 a year.
. An employee on a $50,000 salary (at today’s broker rate of 3.99% for a 5 year fixed mortgage, using $1200 a year property tax and $100 a month for heat) now only qualifies for a maximum mortgage of $238,620 on the 30 year amortization. On the 35 year they used to qualify for $257,451. A reduction of their maximum mortgage qualification of $18,831 or almost 8%.
In regards to rule #2 & #3: We do not recommend customers refinance above 80% anyway because they would have to re-incur the CMHC fees. This change will mainly affect those that were in need of the equity funds – usually to pay down debts or for emergency cash.
Provided by Mark Herman; AMP, B. Comm., CAM, MBA Accredited Mortgage Professional One of the Top-10 Brokers at Canada’s Largest Independent Mortgage Brokerage Mortgage Alliance