Last week Jim Flaherty announced another set of mortgage rules:
- High-ratio buyers (those with less than 20% equity) will no longer be eligible to get a prime mortgage with a 30 year amortization, the max will now be 25 years. This will decrease the amount of money one spends over the life of a mortgage. “The impact of the change is likely to be significant. It’s about the same as a 0.9 percentage point increase on a typical mortgage,” Bank of Montreal economist Robert Kavcic noted.
- In addition, mortgage refinancing will be down to a maximum of 80% (Previously 85%). This will ensure that Canadians have sufficient equity in their homes in case of an interest rate increase or slow down in the real estate market.
- The government will limit the maximum gross debt service and total debt service to 39% and 44% respectively. Basically this means that your mortgage and other basic property costs will be capped at 39% regardless of any other debt you may have.
- CMHC will no longer offer Mortgage insurance on properties over $1 million. So if you wish to purchase a home over a million you need to come up with at least 20% down payment.
- HELOCs (home equity line of credit): The maximum loan-to-value on a HELOC will be 65% (previously 80%). This will affect borrowers who leverage HELOCs for productive purposes (mostly small business or income generating investments).
- Stated Income: Going forward, all self-employed borrowers must provide “reasonable” income verification (e.g., a Notice of Assessment). Most lenders already have such policies. It appears that true “no-income documentation” stated income mortgages are officially a thing of the past at mainstream lenders.
The reason for these changes are meant to “lower risk” for taxpayers and try to limit household debt, according to Flaherty, which is Canada’s biggest economic risk.
If you have questions about the changes to mortgage rules, visit: http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
