Finance Minister Jim Flaherty outlined new rules aimed at reining in a hot housing market to make it harder for people with limited means to buy homes or borrow on ones they already have.
Flaherty outlined a series of changes to the rules that govern the Canada Mortgage and Housing Corporation (CMHC), the crown corporation that effectively oversees the housing market by insuring the vast majority of Canadian mortgages.
The most important change are as below respectively:
1. Maximum amortization period to 25 years, down from the current 30 years. Ottawa has now moved three times to rein in the maximum mortgage term, since the CMHC briefly started insuring mortgages with 40-year terms in 2006. The limit was brought down to 35 years, then 30 and now the more traditional 25, which was always there before 2008.
2. Flaherty also moved to cap the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent in order to get CMHC insurance. Those two ratios are technical limits on how much debt a borrower is allowed to take on as a percentage of their overall income. (Currently, GDS does not apply to qualified borrowers with credit scores of 680+). This move, too, is aimed at making sure a borrower can’t bite off more than he or she can chew.
3. End CMHC Insurance for homes which cost more than $1 million i.e. people looking to buy luxurious homes with high ratio mortgage is no more an option available after July 9th 2012. In addition to not being able to access CMHC insurance, Flaherty said the new rule will be that a buyer of a home priced higher than $1 million must have 20 per cent or at least $200,000 down. This in my opinion is a very good and important move to save our housing market…..as this type of housing is only a luxury and shall only be purchased by people who can actually afford it i.e. high ratio mortgages shouldn’t have been applied here. So, CMHC limited resources shouldn’t be wasted on this sector rather help the entry level products meant for 1st time home buyers.
4. The government has lowered the total amount that Canadians can withdraw when refinancing their homes to 80 per cent of the home’s value, from 85 per cent.
“This will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes,” Flaherty said.
Flaherty said the changes are aimed at promoting stability in the financial system as a whole. The housing market is a barometer for that system.
“We are continually monitoring the housing market,” he said.
To summarize…..Lesser people will qualify for Mortgages starting July 9th 2012 i.e. you will need better credit scores and lower debts to qualify plus 10% – 15% more income to qualify for the same amounts which you will qualify before the deadline approaching only in 18 days!!!
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