For all my clients(past, present and future) in response to your many calls and emails.
This ones for you. The new mortgage rules and what it means for all of us.
There is never a dull moment in the Canadian mortgage landscape with new rules introduced by the Minister of Finance and OSFI, Office of Superintendent of Financial Institutions. I want to state upfront that I support these changes with the exception of reducing secured lines of credit (HELOCs) from 80% to 65% of home values.
Canada’s housing market has been very hot since the credit crunch of late 2008 and the house prices to income ratio gap has grown significantly due to stimulus low mortgage rates.
With a recent spate of soft economic news which is forcing the Bank of Canada to keep rates at low levels for longer, something had to give. The low, stimulative rates have the negative side effect of inducing increasing levels of indebtedness among consumers to unsustainable levels and the creation of asset bubbles and riskier investment behaviour to seek higher returns.
Indebtedness has been cited as the number one threat to the domestic recovery, so the Federal Government is taking the following steps to insure Canadian pay down their debt –
THE CHANGES:
1) All insured mortgages (i.e. High-Ratio) will be amortized at 25 years maximum
2) Refinances will be capped at 80% of value (from current limit of 85%)
3) Debt service ratio limits to be reduced.
THE IMPACT OF CHANGES
*Lower qualifying range for buyers, especially first-time buyers who are typically high-ratio
*Delayed purchase decisions while debt is reduced or earning power improves
*Reduced ability to consolidate higher interest / high payment debts through home equity
-combined with higher mortgage payments due to shorter amortization, this may lead to more homes being sold where they would have otherwise been refinanced for owners that are struggling.
-reduced discretionary spending as borrowers are forced to pay down debt – good in the long run, but one could expect that this will dampen economic growth in the short to medium term
*A short term rush of purchase & refinance activity will be expected leading up to the deadline for this changes
*30 years likely to be available on conventional mortgages…for now
There will definitely be other impacts across the mortgage/housing landscape, but it’s clear that the Bank of Canada will keep interest rates low for an extended period and needed help from the Federal Government to limit the negative side effects of delivering “cheap money” to kick start the ailing economy.
Should you have any further questions or would like to speak to one of the mortgage specialists I work with, do not hesitate to call or email me.
Lisa Portolese, Sales Representative
Royal LePage Kingsbury Realty, Brokerage
30 Eglinton Avenue West, Suite 200
Mississauga, Ontario, Canada
Bus (905) 568-2121
Cel (416) 953-9714
Email LisaMovesYou@Rogers.com
Website www.lisamovesyou.ca
FAQ’s: http://www.fin.gc.ca/n12/data/12-070_2-eng.asp
OFFICIAL ANNOUNCEMENT: http://www.fin.gc.ca/n12/12-070-eng.asp
Related commentary in the Globe & Mail - http://www.theglobeandmail.com/report-on-business/economy/housing/ottawa-tightening-mortgage-rules-no-more-30-year-amortizations/article4358876/
