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Blog by Kevin Wong

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Mortgage Rule Changes

The purchasing power of homebuyers in Canada has taken a step back due to the latest announcement by Finance Minister Jim Flaherty of the Federal Government to combat rising concerns regarding increased household debt. Here are the following changes:

1) Maximum amortization period on government-backed mortgages is reduced from 35 to 30 years.  The change in the amortization period will only affect high ratio mortgages that require Canadian Mortgage Housing Insurance (CMHC) for homebuyers that place a down payment between 5% and 20%.  The minimum down payment on a home is unchanged at 5%. 
  • (EG) A $300,000 mortgage at 4% with a 30 year amortization period as opposed to 35 years would increase monthly payments by $104.
  • This will take effect on March 18th, 2011
2) Reducing refinancing of government-backed mortgages from 90% to 85% of the value of the property. 
  • This will take effect on March 18th, 2011

3) Elimination of government insurance on home equity lines of credit (HELOCS's).
  • This will take effect on April 18th, 2011
The current estimated household debt-to-family income ratio is 148% (Approx. $99,000).  The Bank of Canada recently warned of debt levels increasing faster than income and without significant intervention in how consumers borrow and banks lend this will escalate the problem.  The justification to the current changes in mortgage rules is thus to tackle household debt while avoiding an overall interest rate hike.