Canadian mortgage changes

As a mortgage broker, when it comes to my client's finances I try to remain genuinely objective and look out for their best interest. Frankly, I don't agree with all the changes but I am glad to see that the Federal Government has finally introduced a couple mortgage changes such as reducing home equity lines of credit (aka HELOCs) to 65%.

I can appreciate that housing prices are outrageous in many parts of Canada but I think Quebec pricing remains fairly reasonable. For the most part I think appraisers in the Montreal area are "conservative" for the better. I'm curious to see the impact of the new rules here in the Montreal-area especially with the condo market.

By dropping amortization from 30 to 25 years it seems lower income earners will be eliminated from buying in the short term to medium term. This may not be entirely bad. On the other hand, I am most concerned about recent home buyers that put 5% down, took 30 year amortizations, fixed shorter terms (1 to 3 years) and incorporated lots of over-time and bonus income as part of their income calculations. I've blogged that repossessions in Montreal remains fairly low however I think in the coming years bank repossessions will grow. 

Flaherty Announces New Mortgage Rules

Yesterday, Mr. Flaherty, Finance Minister,  made some aggressive changes to the mortgage rules in an attempt to slow down the rate that people are borrowing on home equity and to slow down the real estate market.
 

Here is a summary of the changes:

1) Amortization reduced from 30 down to 25 years on government backed mortgages (i.e. insured mortgages)
2) Max Loan To Value for Refinancing 80% of your home's market value
3) No CMHC backing for Properties over $1M (client must put down 20%)
4) Gross Debt Service ratio increased to 39% Total Debt Service ratio remains at 44% 

Please note as a repercussion of this announcement today the banks will start to implement the new rules over the next couple of weeks to meet with the July 9th deadline. Mortgages that have already been approved and are in the process of being funded will not be affected by these changes however any future transactions will have to be qualified under the new rules.

The question is: What does this mean for the average Canadian? The government believes that this will help halt an ever increasing housing market and will stop Canadians from using their homes as ATMs to pull cash out of equity.

It remains to be seen if the banks will continue to offer 30 and 35 year amortizations on non government backed mortgages. The government believes that only 5% of Canadians will be affected by these new rules.We did have some good news today as well with respect to these changes. Canadians will still be able to secure a home with only a 5% down payment as well as the increase in the GDS ratio will allow more room for certain families to qualify for homes.

As always I am available to answer all your questions please feel free to contact me. Have a good long weekend everyone.