Mortgage acquisition regulations were tightened by federal Finance Minister Jim Flaherty last week for the second time in a year.
The changes come after warnings from Flaherty about Canadians’ household debt-to-income ratios being at all-time highs and how future interest-rate movements would affect the debt load.
"We’re taking these steps … now because of our concern about higher interest rates down the road," said Flaherty.
There are three changes: The maximum number of years Canada Mortgage and Housing Corp. will insure a mortgage will be lowered to 30 years from 35 years; the maximum amount Canadians can refinance their homes will go from 90% to 85%, and; CMHC will no longer insure home equity lines of credit.
(If you are of the mind to apply for a mortgage or refinancing before the new rules take effect, the first two changes come into law March 18 and the third April 18).
The changes are targeted at high-risk mortgage takers, but will have an effect on everyone.
Mark Herman from Mortgage Alliance does some numbers.
"On a standard $250,000 mortgage, at today’s discounted mortgage broker rates of 3.99% for a five-year fixed mortgage, payments increase from $1,100 a month for the 35-year amortization to $1,187 a month for the 30-year amortization," says Herman.
"An employee on a $50,000 salary (at the same rate and term, using $1,200-a-year property tax and $100 a month for heat) now only qualifies for a maximum mortgage of $238,620 on the 30-year amortization. On the 35-year, they used to qualify for $257,451.
The new regulations should not affect purchasing deals currently in the works, says Herman.
"The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates," he says.
There was a proposal that would have required 100% of condo fees to be included in mortgage calculations, but the current rule remains at 50%. While supporting the rules, the Canadian Association of Accredited Mortgage Professionals suggested a future change to the amortization period.
Mortgages are complicated and require the advice of a professional -- ask your mortgage broker or lender if you need further clarification.
