When it comes to insured mortgage lending in Canada, 25 is the new 30. Additionally, the maximum a homeowner can borrower against their property is 80% as opposed to 85%.
It is interesting to consider that as of 2007 homeowners were able to obtain 40-year amortization. However, Flaherty has cut the maximum amortization down twice since 2008. One could assume that Flaherty is concerned that low borrowing costs could fuel a housing bubble. Shorter amortizations influence an individualís ability to qualify for a higher mortgage because the payments are more.
Name: John Smith
Income: $100,000 per annum
Property Taxes: $2500 per year
Other monthly debt: $0
Heating: $75 per month
Maximum Purchase Price with 30 years: $561,000
Maximum Purchase price with 25 years: $498,000
Comments from the finance boss in Canada:
ďItís our job to try to be ahead of things and act in a measured way, listening to the market. And I have been listening to the market, and quite frankly, I donít like what I hear, particularly in the condo market.Ē
So, who does this primarily affect?
The most affected by these new changes are prospective home buyers who intend to buy near their maximum pre-approval amount or those who want their payments as low as possible.† These changes are to come into effect is July 9th, 2012. Any buyers who have had an offer accepted prior to this date are able to request 30 year amortization, if desired. †The approval date determines who is able to obtain an insured mortgage with 30 years- not the possession date.
Ottawa estimates this will affect 5% of buyers; however, I would tend to think this estimation would be a little low.†
Who does this not affect?
- Purchasers with 20% down or more
- Purchasers with less than 20% down, but preferred 25 year amortization or shorter
- Purchasers who have already made an offer, received an approval from lender and insurer, and are waiting to take possession.
- Existing mortgage holders with a 30 year amortization or longer
There are a few other changes that do not affect a large portion of buyers that I did not include in the article. If you have any other questions as to the implications of the new mortgage changes in Canada, feel free to send me an email or leave your comments below.