New Mortgage Guidelines In Effect!

As of July 9, 2012, the rules for CMHC insured mortgages tightened up in Canada.
The following is a summary of the changes that took effect July 9, 2012:

The maximum amortization period for CMHC insured mortgages has been reduced to 25 from 30 years.
The maximum amount that an individual can borrow when refinancing has been lowered to 80% from 85%.
A maximum percentage for gross debt-service ratio is now (GDS) at 39% and the maximum for total debt-service ratio (TDS) is now  44%, lowered from 45%.
Financial institutions have updated guidelines to follow on residential mortgage underwriting and practices, which among other things, define internal controls, and outline the reporting and monitoring expected of federally-regulated financial institutions.
According to Minister Flaherty, the aim of the new guidelines were to both strengthen Canada’s housing finance system and  to“ensure that households do not become overextended”.
 
Perhaps the most impactful change is the reduction of the maximum amortization period to 25 years. For example, based on a typical mortgage size of $288,000 and a mortgage rate of 5.24%, a reduction in the amortization period from 30 years to 25 years will raise a home-owner’s monthly mortgage bill by $136, which is an increase of 8.6%. Such an increase is the equivalent of a 75 basis point hike in interest rates to a buyer who was banking on a 30-year amortization period. This shorter amortization period also raises the gross income needed to purchase a home, thereby reducing pre-approval amounts because the mortgage payments are now higher, and the GDS and TDS are also lower now so there is no where to make up the deficit except in the actual amount the banks are lending to a prospective buyer.
 
If you are thinking of buying a home and you'd like to know how these changes have affected your pre-approval, it is a good idea to speak with your mortgage broker or financial advisor, just to know how exactly what your options are what, if anything, you can do to raise your pre-approval amount in the upcoming months.


 

    
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Ventura Realty Ltd. Halifax, Nova Scotia Canada