Another Wave Of New Mortgage Rules

Another round of new mortgage rules was announced by the Finance Minister last week.
Minister Flaherty told the bank a few months ago to tighten lending and now is doing it for them. In his words: I’ve been listening to the market and I don’t like what I hear. In other words, we’re still borrowing too much, and the government is still very concerned about our debt levels.

Canada has 9.6 million home owners who will only be affected if they decide to refinance. But tighter restrictions will impact the 260,000 new buyers each year.

Refinancing is now capped at 80% of the home value, down from 85%. The good news is that it will save borrowers an average of $6,000 mortgage insurance that kicks in over 80%.

The debt ratio of what you can have for a maximum mortgage payment is reduced to a total of 39% of your gross income, down from 44%. I’m all for that. Even if you do the math on 39%, it would be pretty tight for affordability, and remember that it’s based on your gross income – and nobody takes home their gross pay!

The maximum amortization for mortgages is now back down to 25 years total. Over the past four years it was up to 35 years, down to 30 and now back at where it should always have been: A maximum of 25 years.

As you can imagine, the mortgage brokerage industry is incensed. They claim, and with some justification that this will impact home prices and the $66 billion renovation industry. Less refinancing money is less spending – but then it’s still legal to spend cash instead of borrowed money!

As to the impact on home prices? When the government moved from 30 year maximum amortization to 30 years, home sales were impacted by about three percent. Tightening that again, plus the average home price, could take a lot of the 260,000 new buyer each year out of the market.

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