Well unless you’re living under a rock, you’re probably aware of the recent changes to the Canadian mortgage rules. If you’re not, no offence but here they are.
Effective March 18, 2011.
The maximum amortization period will decrease from its current 35 years to 30 years on all new “insured” mortgages with a loan to value ratio greater than 80%.
The maximum amount a Homeowner can refinance their properties has been decreased from 90% to 85%.
Mortgage insurance will no longer be available on secured lines of credit or otherwise known as HELOC’s. (Short for “Home equity line of credit”).
So what does all this mean?
First of all, let me start off with HELOC’s. What I found very interesting with this particular change was most of the lenders we do business with had stopped offering this option a long time ago. In all honesty, I wasn’t aware there were lenders still out there offering this product so really “who cares!”
As for lowering the amortization periods from 35 years to 30 years, I feel this was a very good move on the government’s part because…
It will help Canadians build equity in their homes faster.
It lowers the maximum amount someone can borrow without the need of jacking up interest rates.
So for example if you were borrowing $250,000 at 3.75%...
A 35 year amortization would leave you with a monthly payment of $1,065.50 (principle & interest).
A 30 year amortization increases the payment on that same borrowed amount to $1,153.69 (principle & interest) which is obviously a difference of $88.18 a month.
Makes sense so far right? Agreed, but where I have a problem is the concept of lowering somebody’s ability of refinancing their home from 90% to 85%. Why?
Well the governments answer is they don’t want Canadians to be able to re-finance our homes to buy boats and big screen TV’s.
Thanks for the advice on how to spend my money Mr. Flaherty but I don’t recall the government using that same element of prudence when it came to spending of $1 Billion on the G20 summit in Toronto that was nothing but a waste of time and a real embarrassment to our Country.
Hey, I’m all for practicing prudence but in my experience as a mortgage agent, I didn’t have people re-financing to buy toys. What they were re-financing for was to pay back the bandit banks and credit card companies because of the exorbitant amount of interest they charge and never mind the lack of regulations that don’t exist when it comes to obtaining this credit in the first place.
I equate this move to be equivalent to firing all the lifeguards in the public pools. Let’s face consumer credit is just too easily obtained and unfortunately people from time to time get in trouble with this easy access to credit. Their only saving grace was the fact that one could use the equity in their homes to pay those credit cards off and make life less stressful with such high payments.
But now that there’s less money available, I have to assume that this move will cause more people to sell rather than re-finance which will obviously create more listings in the market place and of course if the laws of supply and demand prevail, this will cause home prices to go down.
It would be nice to have a government that has the balls to stand up to the banks and demand them to change their policies on consumer credit as opposed to playing politics and trying to make it look like they’re acting for the greater good.