New Mortgage Rules Effective July 9/12

Posted on 26 June, 2012

To avert a major economic shock or recession, the government has announced changes to the mortgage lending industry effective July 9, 2012. This major change outlines a return to the prior maximum amortization rule of 25 years for all government insured mortgages. This echoes a return to maximum amortization policy, ratcheted from 40 years to 35 in 2008 and further reduced to 30 years in 2011.Flaherty also announced that government backed mortgages will no longer be available for purchase prices exceeding $1 million dollars. By reducing the amortization period, monthly payments will be higher but total interest paid will be lower, ultimately meaning mortgages will be paid off sooner. This also means that first time home buyers will be impacted the most, as they will qualify for less. However as another alternative lenders will be able to continue to offer 30-year amortization periods on low-ratio mortgages that include a down payment of 20% or more. The changes will also lower the maximum equity take-out available for borrowers with existing Mortgages.  It is anticipated that greater equity will be retained in residential properties by reducing these equity lending values from 85% to 80% of total property value. Furthermore, a cap will be applied to Mortgage applications to ensure that borrowers are not allocating more than 44% of their annual income towards debt repayment. Going forward, it is the aim of the government to keep marginal buyers safe from over indebting themselves and provide a more balanced and resilient financial system. 


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