NEW MORTGSAGE RULES 2011
In an effort for Bank of Canada to reduce the escalating debt levels of Canadians, government has introduced new mortgage caps. The International Monetary Fund has called household debt the No. 1 risk to the Canadian economy. It is interesting to know that the ratio of household debt to disposable income has reached 147 per cent and household debt has reached $1.4 trillion.
The change in amortization and refinance borrowing limits will go into effect on March 18, 2011 and the change in insurance on home equity lines of credit will go into effect on April 18, 2011.
Brief info is as follows:
(1) Mortgage amortization periods will be reduced to 30 years from 35 years.
(2) The maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85 per cent from 90 per cent.
(3) The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.
The first change is likely to have the largest impact. Buyers who purchase a home with less than 20 per cent of the value of the home as downpayment, are required to purchase Canada Mortgage and Housing Corporation insurance.
Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.
The changes are considered moderate as they did NOT include an increase to the five per cent minimum down payment required for a home purchase.
They also stopped short of a proposal that surfaced last week which would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consuder a mortgage candidate. Currently, only 50 per cent must be included and that will remain.
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