In recent history, it seems that the mortgage rules change every couple of years.
I remember back in 2003 when I purchased my first house that the maximum mortgage amortization was 25 years.
Then, someone came up with the great idea to make housing more affordable by increasing mortgage amortization to 30 years, then to 35 years,
finally to 40 years.
Over the past few years, they started reverting back amortization bring it back down to more reasonable levels.
What exactly is CMHC?
Its mortgage insurance for clients with less than 20% down payment.
Even though the client pays the premium, it doesn’t insure the client, it insures the bank in case of client default.
CMHC basically takes the risk away from the bank for backing a high loan to value ratio mortgage.
The Mortgage Rule Changes and Implications
Reduced Amortization. Perhaps the biggest change in the mortgage rules is the reduction in maximum amortization from the previous 30 years to
What does this mean?
With the new mortgage changes mortgage payments just got a bit more expensive for new home buyers.
For example, a $200k mortgage @ 3.5% over 30 years is $895/month but over 25 years, the payments are about $1,000/month. (That could be a “deal breaker” for some…)
However, in the big picture, more of the payment will go towards the principal thus less interest paid over the term of the mortgage.
Reduced Refinancing Amount
For existing home owners looking to tap into their home equity, the maximum loan to value has been decreased from 85% to 80%.
What does this mean?
Simply that if you have a $100,000 home that is paid off but looking to obtain a home equity line of credit, you would eligible to borrow
up to $80,000 instead of $85,000. Having this rule also implicitly saves homeowners money, as before, any amount borrowed greater than
80% of equity available required a CMHC fee.
Changes to Qualifying Ratios
When applying for a mortgage, the bank will run a couple of debt ratios to see if you qualify or if the debt burden is too much.
The Gross Debt Service Ratio (GDS), which is a ratio of gross income to housing costs, now must be less than 39%.
The Total Debt Service Ratio (TDS), which is the ratio of gross income to housing costs plus other debts, much be less than 44%.
I don’t see this being an issue as these ratios were more restrictive in the past.
The first two changes will have the biggest impact on Canadian borrowers.
One thing for certain is that changes to the mortgage qualification and approval will be tougher… and most industry professionals think substantially.
No More CMHC for Million Dollar Homes
When the new rules come into effect (July 9, 2012), houses that sell for over $1,000,000 will not longer qualify for CMHC insurance.
What does this mean?
Basically that any house in that price range will require at least 20% cash as a down payment.
I can see this slowing down more expensive markets like Vancouver and Toronto.
What do I think of the changes?
Personally, I like them!
Even though it’s a bit of hand holding by the government, the fact of the matter is that most people do not understand what they can reasonably afford!
Most think that if the bank will give it to them, then it must be OK….
These changes basically bring the mortgage rules in line with what they were for many years in the past.
Now, back to you – what do you think of the new mortgage rules?
If you want to be in touch with my personal mortgage broker to discuss your situation please let me know back and I’ll forward along her
information to you…
NOTE: She interviewed me for the exclusive report I authored that I call:
“The 13 Dirty Little Secrets Your Bank Doesn’t Want YOU To Know About Your Mortgage Insurance!”
By the way, have you checked out my “how to – quick start” insurance videos yet?
If not, you can see them all at one of my sites here at:
You can also pick up my exclusive report:
“The 13 Dirty Little Secrets Your Bank Doesn’t Want YOU To Know About Your Mortgage Insurance!” while you are there…
And who says you can’t have fun with insurance?
We are showcasing some of the funniest insurance commercials we have seen yet.
Vote for your favorite at…
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