News from Canada's Mortgage Experts
Category: The Facts Your Bank Won't Tell You
Back To Where We Started - New Canadian Mortgage Rules
Friday, July 13, 2012
Posted by: Vince Gaetano
Back to where we started...
While the federal government’s announcement introducing further changes to mortgage rules in Canada is sure to upset some people, MonsterMortgage.ca believes that today’s announcement will benefit consumers predominantly by:
• Creating more confident home buyers than ever in Canada
• Preserving equity in your homes helping you to create wealth faster
25 Year Amortization
One of the major changes announced today was the reduction in amortizations to a maximum of 25 years – a tightening measure that some are up in arms over. This is simply a return to Canada was just a few years ago, before the federal government stepped in to jump-start the real estate market with the introduction of 35 and 40 year amortizations. This particular rule change will help Canadians reduce mortgage interest charges over the term of their mortgage and also help you grow equity wealth faster.
Debt Servicing Ratios – Utility Costs and Condo Fees?
The Canadian government will also be reducing the maximum debt servicing ratios (what allows you to qualify for your mortgage) from 44% to 39%. In an effort to address the antiquated monthly estimates used for utility costs that have sky rocketed over the years, this is a prudent change. Having said this, I’m still puzzled to this day why only 50% of condo fees are used for qualifying calculations when the Federal Finance Minister is so deeply concerned about the Toronto condo market as he mentioned in his news conference this morning. This is a missed opportunity to deal with both misguided qualifying variables and the major concern prompting these changes.
Capping Mortgage Insurance
The capping of the maximum insured mortgage at $1,000,000 is long overdue. There was a time in the late 1990’s where the cap on insured mortgages in Toronto and Vancouver was $300,000!!! I was never sure why this cap was lifted by CMHC in the first place but I would hazard to guess that this was the beginning of the end of “the saver” in Canada. At the time, if you bought a home for $301,000, you would need $75,050 or 25% to get a mortgage. The lifting of the cap at the time allowed people to not only buy with just $15,000 but it also allowed homeowners to buy more house than they needed (you basically be purchasing on cash flow). Not only did this cause people to save less because they didn’t have to come up with a larger cash down payment but it also allowed them to build up more debt making your bank (NOT YOU) a whole lot richer. On this change, I think the government didn’t go far enough. Minister Flaherty could have gone further and taken a big step towards helping many Canadians find the lost art of saving, one that our parents knew so well.
Refinancing to 80%
As far as the last change announced today whereby the government has limited refinancing to only 80% of the value of your home from 85%, this actually is a move that preserves wealth for a homeowner. The government shouldn’t be in the refinancing business. The primary role of the Government of Canada (via CHMC) should be to put Canadians into homes and not enable homeowners to use their homes as ATM machines, which is exactly what the bank’s want you to do, because building up bad debt on lines of credit and credit cards makes your bank a lot of money!
These changes will have a positive impact on consumers and the market overall. They will create a more confident buyer – a buyer that is well prepared, motivated and able to afford their new home and return the home to a primary investment that can help Canadians create wealth vs. using it as a credit card that only contributes to your bank’s bottom line.
If you have any questions or concerns about these changes please don’t hesitate to contact me.
Comments:
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The Anonymous Monster
Written on Fri. June 22nd, 2012. 03:12PM
Thanks to everyone for the comments.
Whether you're positive or negative on the changes, it is good to see Canadians taking their mortgages seriously.
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Lukas
Written on Fri. June 22nd, 2012. 03:06PM
This is only 'good' in the sense that it may stop a real estate collapse and may instead give us a strong 'correction'
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DC
Written on Fri. June 22nd, 2012. 02:23PM
@S & @Rick
The price of S's condo and the price of homes in Georgetown will now come DOWN because fewer people can afford them.
Suddenly those Georgetown homes are priced at $400 and with 20% down you need 80k. If you don't have 80k? Well maybe you should look at the $300k homes - the same homes that used to be priced at $400 k.
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S
Written on Fri. June 22nd, 2012. 10:18AM
I am currently saving to buy the condo I am renting so I can finally own my own home. I was close enough that I could probably purchase it in September. With the 25 Year Amortization it makes the monthly payments unaffordable for and sets me back atleast a year. This is devastating to me and I wish I knew this was coming sooner. For someone like me who has had to start over in their life this is certainly NOT a benefit. I would imagine writer of this article and those in the government who deiced these changes, currently own their home and have not had to struggle to try and provide a home for their family.
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Rick
Written on Fri. June 22nd, 2012. 08:19AM
I completely disagree that this is a good thing for home buyers.
Try finding a four bedroom home in Georgetown for under $540 000 and on top of that, try saving $135 000 for the 25% down payment.
Your home home shouldn't be about building wealth. It should be about providing quality of life and liquidity of your paycheck. Young families need longer amortizations and lower down payments.
Nearly every family is starting life with post secondary education debts of tens of thousands of dollars (something that our parents did not have to deal with).
These changes will only add to the disparity between the wealthy and middle class in terms of housing.
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D
Written on Fri. June 22nd, 2012. 07:52AM
Well this sure puts a spin in the direction of the government. Yes the government is truly helping us, the tax payor, they really care about our saving/debt situation.Seriously!! This is about them protecting themselves as well. Let call a spade a spade.The government is trying to ensure they don't end up like the US. Well then stop lending to people you know very little about, people who walk into this country and immediately have money being loaned to them, education funding being loaned to them, access to our medical system FOR FREE!!. I hear it all the time from then as they brag what they get from CANADA.One boy I went to University with explained how family planned to get help from Canada. Mom came as seperated mom of two. Got the welfare,stay till they got the Citizenship,ensuring children attended our University on the cheap,once Citizenship received, Mom went back with hubby in Iran,child finished school moved IMMEDIATELY to US with Uncle to WORK.Oh but it gets better Mom get heart problem while in Iran returns to Can. gets $150,000.00 surjury and returns to hubby. Wake up folks they need to monitor our funds being removed from our country in many different forms.Now please don't get me wrong I love having folks from all walks of life joining Canada to make it the greatest place on earth. But like you stated in your comments our parents knew what it meant to work hard, save a dollar, then buy when they could afford it.So maybe we need to be more mindful of who we lend to,how long they've lived here,of being able to track them should they leave..a very difficult task when the highest officials of the US can't find people they're hunting. Ensure profits made in our Country stays in our Country. I also know that the younger families in our country want the big homes, the big diamonds and expensive weddings, the fancy cars, the vacations, the clothes..oh don't get me started on the clothes. They dont have enough sense to realize the homes their parents have today is not how they begun. Besides there was certainly more marriages lasting over 5yrs. Today at over 50% of marriages failing I'd not be gambling a debt along side a friend with those odds. All I'm saying is that I think this is a cheap shot at controlling the ENTIRE CANADIAN borrowing population without considering who we're lending to as well. Hope you folks get what I'm talking about.
