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Mortgage Rule Changes January, 2011

Posted by Jeff Campbell on Wednesday, January 19th, 2011 at 9:56am.

January 17, 2011  Federal Finance Minister Jim Flaherty announced 3 changes:

1.      The maximum number of years the government will back a mortgage was lowered from 35 years to 30 years. The maximum used to be 40 and was lowered to 35 a year ago. Previously the long time standard was 25.      

o   Change will take effect March 18th.

2.      The maximum that Canadians can refinance their home is lowered from 90% to 85%.

o   Change will take effect March 18th.

3.      Government insurance backing on home equity lines of credit, or HELOCs, has been removed.
o   Change for Heloc’s no longer being insured will take effect April 18th.

The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.

There was a proposal that would have required 100% of condo fees to be included in GDS & TDS ratio calculations however the current rule remains at 50%.

The 5% down payment still exists as does the 0% down – surprisingly – but for how long?

Detailed Numbers

In regards to rule #1:
.     On a standard $250,000 mortgage, at today’s discounted mortgage broker rates of 3.99% for a 5 year fixed mortgage payments increase from $1100 a month for the 35 year amortization to $1187 a month for the 30 year amortization. An increase of $87 a month or $1,044 a year.
.     An employee on a $50,000 salary (at today’s broker rate of 3.99% for a 5 year fixed mortgage, using $1200 a year property tax and $100 a month for heat) now only qualifies for a maximum mortgage of $238,620 on the 30 year amortization. On the 35 year they used to qualify for $257,451. A reduction of their maximum mortgage qualification of $18,831 or almost 8%.

In regards to rule #2 & #3: We do not recommend customers refinance above 80% anyway because they would have to re-incur the CMHC fees. This change will mainly affect those that were in need of the equity funds – usually to pay down debts or for emergency cash.

Provided by Mark Herman; AMP, B. Comm., CAM, MBA  Accredited Mortgage Professional  One of the Top-10 Brokers at Canada’s Largest Independent Mortgage Brokerage Mortgage Alliance

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