New Mortgage Rules for March 18th, 2011
New Mortgage Rules this Spring
Canada’s Finance Minister announced new mortgage regulations on January 17th. There are 3 changes that will take place in the coming months. The first two changes will take place March 18th and the final change will be implemented on April 18th.
Changes
March 18th
April 18th
Reason for the new regulations
The concern is the rapid increase in Canada’s household debt. The ratio of money owed vs. disposable income is almost 150% as of the third quarter of last year. Record low interest rates have prompted people to borrow more than ever before. Certain uses for borrowing such as consolidation can be a very effective way of reducing debt however it has been found that many Canadians are not borrowing to consolidate or reduce lending costs but to purchase boats, cars, and items that were not affordable when rates were higher. The government’s concern is that rates will eventually rise and these loans will no longer be affordable. Shorter amortizations amount to slightly higher mortgage payments however it will save tens of thousands of dollars in interest over the life of the mortgage.
How will payments change for buyers?
The following table illustrates the change to payment by reducing amortization from 35 years to 30 years. Example interest rate is 3.99%
| Mortgage Amount | Diffrence in Payment |
| $200,000 | $69.48 |
| $300,000 | $104.22 |
| $400,000 | $138.96 |
| $500,000 | $173.69 |
| $600,000 | $208.44 |
We have been asked a few times in regards to renewal payments. There will be more information released to clarify things however the consensus is that mortgages renewing after the regulation change will not be affected unless there is a change to the mortgage like an increase in the amount, a change in the property (port), or a change in lending institution (essentially a new mortgage and not a renewal).
The Rule Changes are firm taking place on March 18th and all Deals need to close by the 18th to be unaffected, however if a Purchase and Sale contract is in place for a later date CMHC will consider it.
Avi Dhaliwal
Dirrect: 416-882-1200
avi@avidhaliwal.com
www.askhomevalue.com
