February 26, 2011

Home Buyers and the New Canadian Mortgage Rules

A couple weeks ago, Finance Minister  Jim Flaherty announced new Canadian mortgage rules that will be used in an effort to "protect the stability of the economy." The new mortgage rules mark the second round of changes made by the Federal Government in the past 12 months amidst warnings from the Bank of Canada that household debt levels are growing faster than income. The changes consist of the following:

• Amortization is reduced to 30 years from 35 years.
• Refinances will only be up to 85% of the home value compared to the previous 90% of the home value.
• Government will withdraw insurance backing for home equity lines of credit

How will this affect Canadian home buyers? The first rule change is really the only one with any impact on new home buyers. With the new stricter rules, qualifying for a mortgage will be more difficult-especially for first time home buyers as they will not have the option of the extra 5 years amortization that they have had in the past. Without that extra 5 years, monthly payments will go up which could force buyers to settle for less house in order to be able to make the payments. Speculation is that most Canadians in the market to buy a new home won't see any negative effects if they are financially stable with a manageable debt load and can provide a minimum 20% down payment. The other two rule changes affect refinancing for existing home owners and are aimed at ensuring economic stability by encouraging consumers not to overextend their financial capabilities.

The new rules go into effect 0n March 18, 2011 so if you are one of the many wanting to take advantage of the current rules, you have until March 17th, 2011 to do so!