Mortgage Changes in Canada: Effective March 18, 2011
Due to concern over rising Canadian consumer debt levels, Finance Minister Jim Flaherty announced three major changes to mortgages on last Monday. This news has brought an avalanche of questions and concerns among many clients, wondering how this affects them.
Here are the new rules:
1. Maximum amortization period capped to 30 years from 35 years.
2. Reduction of government insured Home Equity Lines of Credit.
3. Refinancing maximums have been lowered to 85% from 90% of the value of the home.
ALL CHANGES WILL BE IN EFFECT ON MARCH 18, 2011. CURRENT MORTGAGES WILL NOT BE AFFECTED.
Here are some questions that you may have:
Q: When must I apply in order to secure a 35-year amortization/high-ratio mortgage/90% loan-to-value refinance?
A: To be safe, ensure that you are approved for your mortgage by Thursday, March 17, 2011. Not just pre-approved!
Q: How does the change affect refinancing my mortgage?
A: Current homeowners that were hoping to withdraw up to 90% of their home equity for debt consolidation, home renovations, investing, etc., will need to do so before March 18. The change will make a significant difference for those needing a certain amount from their refinance. For example, if your home is valued at $300,000, the reduction of the maximum borrowing limit by 5% can mean a difference of up to $15,000 off the table.
Q. How will a 30-year amortization rate, versus a 35-year, affect my monthly payments?
A. Based on a standard mortgage with an interest rate of 4%, the payment would be about $35 higher for every $100,000 borrowed.
Q. I have a Home Equity Line of Credit (HELOC) now. Will this be affected by the new rules?
A. Lines of credit put in place before April 18 will generally be unaffected by the new HELOC changes. Insured HELOCs will stay insured until they are discharged.
In my opinion, based upon the strength of the Canadian mortgage industry, these changes to Canadians' options seem unnecessary. The government is punishing the majority of Canadians that are financially responsible, because of the actions of a smaller number of reckless borrowers. I make my first priority to take care of my clients, and ensure that I find a mortgage that best suits their needs. I NEVER want my clients to borrow beyond their means – that is why I take every precaution to thoroughly understand the needs and goals of each person that contacts me.
With all of this in mind, please contact me for more information or if you, or someone you know, is thinking of buying or refinancing. Not all lenders or mortgage professionals are being pro-active and informing their clients of these changes, and how it can affect them. .
With March just around the corner, your financing options are becoming more limited.
Date: February 15th, 2011
Time: 3:35 PM
Author: Luke Wile
