New Mortgage Guidelines
Recently, Canada’s Minister of Finance — Jim Flaherty — announced new rules aimed at toughening up mortgage lending in an effort to curb further growth in record household debt levels.
According to a recent Financial Post article, the changes to the country’s mortgage rules — the second in as many years — emerge amid rising concern about the record levels of household debt, which measured as a ratio of money owed to disposable income nears a startling 150% as of the third quarter of last year. That surpasses the level of debt held by American households, whose appetite for borrowing helped stoke the financial crisis of a few years ago.
See this Financial Post article for more details:
Here is a summary of the 3 new mortgage guidelines, which take effect on March 18, 2011:
1. The maximum amortization has been reduced from 35 years to 30 years.
Amortization is defined as the amount of years that a mortgage is spread out over before it’s paid off in full.
The amortization length – along with your interest rate – is a key factor in determining your monthly mortgage payments and how affordable they are.
Since the shorter amortization of 30 years will push the monthly mortgage payments higher than they would be at 35 years, general mortgage qualifying will be somewhat tighter.
2. When doing a refinance, the maximum amount of property’s equity that lenders will allow us to utilize has dropped from 90% to 85% of the total property’s value.
3. The Government will no longer ensure Home Equity Lines of Credit, also known as “Heloc’s”.
This guideline is more of a formality, as most heloc’s were not insured anyway.
This is because the government usually avoids insuring any mortgage products (including heloc’s) whose value represents 80% or less of a property’s value, and most lenders will not approve heloc’s at anything more than 80% Loan to Value anyway.
Helpful tips for you (and your clients) when navigating these new guidelines:
• If you are contemplating re-doing your existing mortgage to use your equity, or buying property anywhere in Canada, now’s the time!
Through my free mortgage consultations, I can help you explore different scenario’s to understand what’s possible when you take advantage of the 35 year amortization before it disappears.
I can also hold a mortgage interest rate for you for up to 4 months. This will give you time to think about your options, while protecting you against any rate increases that may occur.
• The good news is that as long as we finalize your new mortgage before March 18th, you don’t have to set the closing date for your refinance or your new property’s possession date until after that.
So, this gives you some flexibility.
As always, please call me if you have any questions about this information.