The Federal government just announced new mortgage rules that will take effect July 9th.
Needless to say, I received a number of inquiries from clients who are set to close on the sale of their new properties, or have been looking into refinancing their existing mortgages. I thought I should share with everyone what I told them.
As per their press release, the Government announced four measures for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. (Buyers who purchase a home with a down payment of less than 20 per cent of its value are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.) These changes are:
•Reduce the maximum amortization period to 25 years from 30 years.
•Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes.
•Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent.
•Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.
Many people, and many of my clients, won’t be affected by these changes. Home sales in Canada, and homes sales in Mississauga, might take a little jump up as people try to get in prior to the July 9th deadline.
Many of my Mississauga clients already opt for a mortgage amortization period of 25 years or less. At one time, the government had increased the period to 40 years, but they have been decreasing the time frame in the last number of years. With fewer years to pay off a mortgage, your mortgage payments will, obviously, be higher. The up side is you will end up paying less in interest.
Lowering the amount Canadians can borrow against their mortgage to 80 per cent of their home’s value, will mean home owners won’t be able to borrow as much against their home equity. So, if your home is worth $100,000, you can only refinance so that you owe a maximum of $80,000, not $85,000.
Your Gross Debt Service Ratio is an indication of how much debt you are carrying. It is defined as your annual mortgage payments and your annual property tax payments divided by your annual gross income. Essentially, lowering it five percentage points is a way to help ensure that people aren’t buying more of a home than they can afford.
Together, this tightening of the mortgage rules should have a moderating effect on the growth of Canadians’ debt levels.