Ottawa reduces max mortgage amortization to 25 years

[pherthyl]

It's not as important as what grocery store is best, but here's a summary:

If you need CMHC insurance:
- Maximum amortization drops to 25 years (from 30).
- Maximum loan to value for refinances drops to 80% (from 85%)
- No more CMHC insurance for mortgages over 1 million

More information here.

At the same time the Office of the Superintendent of Financial Institutions finalized their new regulations which apply to all mortgages. In short:
- Maximum loan to value for HELOCs drops from 80% to 65%
- All mortgages shorter than 5 years fixed will be qualified on the posted rate (just like they are now for CMHC insured mortgages)
- No more stated income mortgages
- Banks are no longer allowed to lend you the down payment. They can still offer cash back, but that cash cannot be used as the down payment.

More information here.



What does this mean for the average first time buyer that has to get a 25 year mortgage instead of a 30 year?
- 12.5% higher monthly payments
- Or, about 10% less house that they can afford.

[pherthyl]

Ottawa has moved 3 times in the past 4 years to tighten mortgage regulations around CMHC. This is how our market behaved.

[Holden West]

Great. I just met with a mortgage broker last Monday and got some positive numbers regarding a house we have an eye on. Now we have to go back and see if a bank will still lend us the money.

[spanky123]

Originally Posted by Holden West

Great. I just met with a mortgage broker last Monday and got some positive numbers regarding a house we have an eye on. Now we have to go back and see if a bank will still lend us the money.

If you get pre-approved before the 8th you should be fine under the old rules.

[Bob Fugger]

Does anyone know what this means for existing mortgages? For example, is someone who purchased a home a few years back under a 30, 35 or 40 year amortization able to renew at the same terms? And if so, are they now betrothed to their existing lender if they want to keep the same amortization? If that's the case, Flaherty has just screwed a tonne of folks because you know banks ate going to stick it to their current high amortization customers when renewal time comes along.

[pherthyl]

Originally Posted by spanky123

If you get pre-approved before the 8th you should be fine under the old rules.

No. A pre approval is not enough. If you want to get a 30 year you need to have your purchase agreement signed before the 9th.

[pherthyl]

Originally Posted by Bob Fugger

Does anyone know what this means for existing mortgages? For example, is someone who purchased a home a few years back under a 30, 35 or 40 year amortization able to renew at the same terms? And if so, are they now betrothed to their existing lender if they want to keep the same amortization? If that's the case, Flaherty has just screwed a tonne of folks because you know banks ate going to stick it to their current high amortization customers when renewal time comes along.

Assuming they have CMHC insurance they can keep their original amortization. They just can't extend it past 25 years.
Also they are free to switch lenders because the insurance is for the life of the mortgage.

[Kikadee]

I'm a first-time buyer who just signed my purchase agreement with a 30-year amortization about two weeks ago . . . The nick of time! I bet there are some mortgage brokers cancelling their summer vacations right now.

[VicHockeyFan]

Originally Posted by Kikadee

I'm a first-time buyer who just signed my purchase agreement with a 30-year amortization about two weeks ago . . . The nick of time! I bet there are some mortgage brokers cancelling their summer vacations right now.

Congrats on the buy! What'd ya get?

EDIT: Oh right, something in Sooke. Well, the question still applies, what'd you get in Sooke?

[Kikadee]

^ Hey thanks, VHF.

We found a 1350 sq.ft. rancher on a 1/3-acre lot in Sooke, built in 1992, entirely renovated and with a brand new roof.

We couldn't even contemplate a development such as Sunriver, which is living too cheek-and-jowl for our tastes. Never mind that my fiance is nuts for his Land Cruiser, and needs a sizable garage to play in. The same house in West Shore, Saanich, Victoria? Could not have afforded it.

We locked in for ten years, since Carney was warning about rising interest rates. Who knew Flaherty was going to pull this amortization business, instead? Wasn't even on our radar, so I'm pretty grateful we pulled the pin when we did. Whew.

[spanky123]

I don't know if this is true across the board but a mortgage broker friend of mine just said that the changes will knock 20% of her clients out of the game.

[VicHockeyFan]

Originally Posted by spanky123

I don't know if this is true across the board but a mortgage broker friend of mine just said that the changes will knock 20% of her clients out of the game.

I can't see it being that big a hit. You'd be surprised how creative people can become when they need to. As a banker on CFAX said the other day, a lot of first-timers still use the bank of mom and dad to gather up down-payments. Also, if they need to be a little more conservative on what they buy, that doesn't mean they don't buy, they scale back a bit.

[LJ]

Originally Posted by Kikadee

^ Hey thanks, VHF.


We locked in for ten years, since Carney was warning about rising interest rates. Who knew Flaherty was going to pull this amortization business, instead? Wasn't even on our radar, so I'm pretty grateful we pulled the pin when we did. Whew.

It should have been on your radar, Carne and Flaherty have been warning it was coming for over a year now.

[LJ]

Originally Posted by Bob Fugger

Does anyone know what this means for existing mortgages? For example, is someone who purchased a home a few years back under a 30, 35 or 40 year amortization able to renew at the same terms? And if so, are they now betrothed to their existing lender if they want to keep the same amortization? If that's the case, Flaherty has just screwed a tonne of folks because you know banks ate going to stick it to their current high amortization customers when renewal time comes along.

Why would the bank screw these people? They are more than happy to let you pay tens of thousands of more interest to them by having the longer ammortization.

As you pay down your mortgage you should be looking for shorter and shorter ammortization, as much as you can afford.

[LJ]

Originally Posted by VicHockeyFan

I can't see it being that big a hit. You'd be surprised how creative people can become when they need to. As a banker on CFAX said the other day, a lot of first-timers still use the bank of mom and dad to gather up down-payments. Also, if they need to be a little more conservative on what they buy, that doesn't mean they don't buy, they scale back a bit.

I agree, that's how it should work, some people don't modify their expectations based on economic conditions.

Chamnpagne tastes and beer budgets.

[Roger]

New mortgage rules are in effect starting today. Anyone with a pre-approval letter, that hasn't signed a deal and submitted paperwork, needs to visit the bank to get it updated if the mortgage amount was based on a 30 year amortization. The rate will still hold but the amortization term will be changed to 25 years and payments will be higher. They should also double-check that the amount of the loan is calculated using the new GDS ratio (if they are a high beacon score).

Some interesting news articles on this subject:

Strict new rules come into effect today.

Half of Canadians not aware of new mortgage rules

Impact of new rules on existing mortgage holders.

.

[PulpVictor]

These rules are even more protection for banks, who are very cosy with the Government. Their song is that 'we must protect people who prefer debt to saving'. Tell me the choice young people have today.

Fresh statistics show that Canadian's ratio of debt to personal disposable income rose to 152 per cent last quarter, up from 150.6 at the end of 2011.

If it took two incomes to qualify for a mortgage, and one of those people has a change in jobs, or god forbid, loses their job, will they re-qualify next go-round? Maybe not.