What do the new mortgage rule changes mean to homeowners and potential homeowners in Canada, and more specifically Calgary. First off it is important to understand what exactly has changed and how these changes will effect you. Here are the recent changes
1. LIMITED THE MAXIMUM AMORTIZATION PERIOD DOWN TO 30 YEARS
- This change is fairly straight forward, 5 years less to pay off the mortgage on your home (down from 35 years). Although this means less interest paid to the bank over the duration of your mortgage, it also means people looking to purchase will have tighter qualification requirements along with a slightly higher paymet.
2. LOWERED THE MAXIMUM REFINANCING AMOUNT TO 85% OF THE LOAN TO VALUE (DOWN FROM 90%)
- This change along with the reduction in amortization encourages homeowners to keep more equity in their homes, those refinancing will have to leave an additional 5% of the value in the form of equity in their home. To keep it simple, homeowners will not be able to pull as much equity out of their home when they refinance.
3. WITHDRAWEL OF GOVERNMENT BACKED NON AMORTIZING LINES OF CREDIT SECURED BY HOMES
- In the past these lines of credit are non-amortizing, meaning that the borrowers are not required to make regular payments on the principal amount of the loan. In addition these loans are almost exclusively variable rate products, which expose borrowers to the impact of rising interest rates. Many lenders now offer multiple loans or a multi-segment loan secured against a borrower’s home. If a loan or a segment of a multi-segment loan is in the form of a revolving line of credit that does not
amortize over time, it will no longer be eligible for government-backed insurance. However, with established scheduled principal and interest payments, a loan will continue to be eligible for government backed
insurance, provided it meets the underwriting standards set by the mortgage insurer. Withdrawing government insurance backing on these non-amortizing products is consistent with the Government’s objective of supporting the long-term stability of Canada’s housing market.
The adjustments to the maximum amortization period and the maximum refinancing amount will come
into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured
by homes will come into force on April 18, 2011.
For more thorough information on the changes, visit the Department of Finance Canada website at:
If you are thinking of purchasing in the next few months and want to take advantage before these rules come into effect, follow this link for the FIRST STEPS YOUR SHOULD TAKE. http://www.calgaryrealtyteam.com/Blog.php/buying-in-2011-what-to-do-before-mortgage-rules-change-in-calgary