Big changes to mortgage rules will impact first time, gov’t insured buyers

June 25, 2012


Mortgage lending rules are being tightened by the Canadian federal government amid concerns about an overheated housing market and rising household debt.
This will impact many first-time buyers and buyers with government-insured mortgages.
Finance Minister Jim Flaherty has announced the federal government is reducing the maximum amortization period for a government-insured mortgage to 25 years from 30. Under the new changes, banks will still be allowed to offer 30-year amortization periods on low-ratio mortgages that include a down payment of 20 per cent or more. The reforms will also see the government lower the maximum Canadians can borrow against their home to 80 per cent of its value, from 85 per cent, in an effort to encourage them to keep more equity in their homes.
As well, under the new rules, to qualify for a mortgage loan Canadians can spend a maximum of 39 per cent of their gross household income on home expenses such as mortgage, property taxes and heating, and maximum 44 per cent of income on housing expenses and all other debt.
Ottawa will also limit government-backed insured mortgages to home purchases of less than $1 million. A downpayment of at least 20 per cent will be required on mortgage loans for homes priced at or above $1 million.
Reducing the amortization period will increase monthly payments, but reduce the amount of total interest paid on a mortgage.
The new rules take effect July 9.



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