New Mortgage Rules, How they will Effect Home Buyers

This week have started with anticipated move from our Finance Minister Mr. Jim Flaherty, who announced new mortgage rules getting mostly in effect starting coming spring of 2011.

These rules were anticipated, citing the need to prevent the kind of housing market problems that led other countries into financial crisis and are designed to ensure Canadians don’t take on more debt than they can handle, took aim at mortgage amortization, refinancing and the use of lines of credit secured by homes.

“The main reason we’re taking the action is for the longer term, that we avoid even the beginning of the development of the kinds of issues that have happened in some other countries, that have been very damaging to families,” said Flaherty.

Canada’s housing market avoided the meltdowns seen in countries like the United States, Britain and Ireland during the global recession, due to always being conservative in their approach towards mortgages, which was not the case with any of the above countries. As the policy makers have repeatedly said, that they don’t see any signs of a housing bubble, in order for our economy to escape any such meltdowns even for long term future, such policies are considered important steps to cool the housing market and avoiding such a undesirable situation to be encountered with.  

Under the new rules:

1. The maximum amortization period is now 30 years (down from 35 years) for government-backed insured mortgages, when the down payment is less than 20 percent.  This new amortization limit will come into force on March 18, 2011. 

2. The maximum amount that can be borrowed when refinancing a mortgage is now 85 percent the value of the home, down from 90 percent.  This new refinance limit will come into force on March 18, 2011. 

3. The government will no longer provide insurance backing for home equity lines of credit.  Government backing for home equity lines of credit will end on April 18, 2011. 

That said, if you were thinking of Upgrading your home to a bigger one or are a 1st time home buyer qualifying on margin, Please react RIGHT NOW!!!

To give you example of how it effects you, lets say your purchased a house for $500,000 with 10% down payment @ 3.70 Fixed 5yr Interest Rate, your monthly payments are compared as below:

1. With Current Rules, your Mortgage payment Per Month will be 1,950.59 with Gross Income requirement of Approx. $74,000.00

2. With New Rules, your Mortgage payment per month will be 2109.51 with Gross Income requirement of Approx. $80,000

As per above example, other then requirement of higher income, your will need to spare $160.00/Month more i.e. approx. $10,000 over 5 Years.

If you are planning to buy for investment, this difference can convert a positive cash flow to negative and also may not even qualify you for the same any more.

So, please get serious with this if you were planning to buy in next 1 year, you are better off buying it now.

Contact me @ 416-738-7331 to set up your no obligation consultation, to discuss your situation or visit my website to see the current properties available in market.


About GTA Real Estate Agent

Established, Experienced and Full Time Real Estate Professional specializing in Residential & Commercial Real Estate Buying & Selling Representation in Greater Toronto Area
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