As you may have heard, late yesterday Finance Minister Jim Flaherty has introduced four changes to the mortgage lending world which will take effect July 9th, 2012.
“We want people to make sure that when they purchase the most important purchase they’ll probably ever make in their life, that they do so in a prudent way. And some calming of the market is desirable,” said Mr. Flaherty. Courtesy of The Globe and Mail (Thursday, June 21, 2012)
The changes are as follows:
-Reduce the maximum amortization period to 25 years from 30 years
-The maximum amount of equity homeowners can take out of their homes through a refinance is being reduced to 80 percent from 85 percent
-The availability of government-backed mortgages will be limited to homes with a purchase price of less than $1 million
-The maximum gross debt service ratio (GDS) will be fixed at 39 percent and the maximum total debt service ratio at 44 percent
Please note that these rules are in addition to OSFI's announcement of limiting the maximum loan to value on Home Equity Lines of Credit (HELOC's) to 65 percent.
According to Flaherty, this will affect less than 5 percent of home purchasers although I feel this may put some First Time Home Buyers on the sidelines for the time being. First Time Home Buyers do have an influence on the real estate market so will this affect the economy without the influx of First Time Home Buyers making a purchase? Certainly this will have a trickle down effect on our economy.
The difference in income required for qualifying on a 25 year amortization as opposed to 30 years is approximately $4,500.00 or so depending on the price of the property purchase. I would be able to determine the exact amounts for you should you require further assistance. Also, moving amortizations from 30 years to 25 years amounts to a monthly mortgage payment jump of about $130.19 per month. This is based on a $250,000.00 mortgage with a 5 year rate of 3.29 percent.
Overall, these rules are in place to reduce the amount of interest you pay overall and this will allow you to pay off your mortgage sooner.
If you are making a home purchase with over 20 percent as a down payment, as for now you will be still able to access amortizations up to 30 years. For those of you that are currently in a mortgage with amortizations over 25 years, you will be able to keep your existing amortization at renewal provided you make no changes to your current mortgage. If there are any changes to be made, you will be subject to the new rules.
For those of you that are currently pre-approved with a lender and are providing a down payment of less than 20 percent, you should work with your Real Estate Professional to find a property ASAP. If you are actively searching for properties on MLS with your Real Estate Professional and are making some 'not so serious offers', I would consider getting serious and get the offer completed with your file confirmed prior to July 8th. A signed accepted offer should be in place prior to July 6th to ensure the underwriting is complete in time.
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Jason Nesseth | Mortgage Specialist | British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage"
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com