If you are in the market looking for buying a house you need to be aware of the recent changes made by the Federal Government affecting the mortgage industry in Canada:
In an effort to limit the growth of Canadian consumer debt the Federal Finance Minister, Jim Flaherty, announced changes to mortgage insurance rules intended to ensure the stability of Canada's housing market.
These measures include:
- Amortization period capped at 30 years, changes are effective effect March 18th
- Maximum refinancing reduced to 85% from 90% loan-to-value ( LTV), changes are effective effect March 18th
- Reduction of government backing for home equity lines of credit (HELOC), changes are effect April 18th
There are no changes to down payment requirements, as was anticipated by some.
Alberta Mortgages encourages you to take advantage of our Calgary mortgage affordability calculator, available on the web site, to assess the impact of the above changes. Here is further detail to explain the changes:
Reduce the maximum amortization period to 30 years from 35 years for new Federal Government-backed insured mortgages with LTV ratios of more than 80 per cent. The Government's view is this will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire. Although this is not a perfect rule, it will attempt to lower the risk of mortgages and the total amount of Canadian consumer debt.
However by lowering the amortization to 30 years from 35 years the Federal Government intention is going to slow the process of home buying raising the affordability to buy a new home by increasing the monthly mortgage payments required. Hence only those buyers who are able to afford the relatively higher monthly payments will qualify. A number of Canadian will miss the opportunity to buy a home and take advantage of the low interest rates.
Reduce Refinancing to 85% from 90%:
Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers. However most Canadians refinance their homes in order to pay out high credit cards debt, which is at 18% or higher. This act will not curb credit card debt which remains uncontrolled and will not give home owners the opportunity to use equity in their homes to consolidate debt or venture into a new investment.
Reduction of Government backing for home equity lines of credit (HELCO):
Of the three changes, the one that is likely to have the greatest impact is the withdrawal of federal insurance backing for HELOCs. "Home-equity lines of credit and loans have surged in Canada," the Globe and Mail observes, "rising at almost twice the pace of mortgages over the past decade." HELOCs now account for 12 per cent of overall household debt, according to the Globe. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers. As a result the financial institutions will increase their rates on HELCO products or will not be as open to grant these loans.
As was noted earlier using our Calgary mortgage affordability calculators for mortgages across the country potential clients can evaluate the impact of these new changes to the mortgage rule on their home buying affordability. Calgary best mortgage affordability calculator can also be used to show the amount of funds available for re-financing an existing property.
Potential home buyers or those who are looking for refinancing in Calgary or across the country are able to use these mortgage affordability calculators available on Alberta Best Mortgages Web site to evaluate the affordability to buy a new home or re-finance an existing property.
Clients are also welcome to give us a call at Alberta Mortgages in Calgary to assist with the mortgage affordability calculators.