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Mortgage Rule Changes are Here!

Effective July 9, 2012

As many of you have heard via media releases June 21/22; qualifying for a mortgage has just gotten a bit tighter.  We had actually seen a tightening in approvals of insured mortgages in the past month before the announcement.

The Government is announcing four measures for NEW government-backed insured mortgages with loan-to value ratios of more than 80%:

• Reduce the maximum amortization period to 25 years from 30 years.  This will reduce the total overall interest costs of your mortgage and build equity in your home more quickly by paying off your mortgage sooner.  The maximum amortization was set at 35 years in 2008 and reduced to 30 years in 2011 and now to 25 years in 2012.

• Lower the maximum amount that Canadians can borrow when refinancing to 80 percent from 85 percent.  This measure, the government thought, are that savings will be promoted through home ownership and encourage homeowners to prudently manage borrowings against their homes.

• Fix the maximum gross debt service ratio at 39% and the maximum total debt service ration at 44%. Personally I believe that this is too high.  Remember that the calculations are of gross income not after tax dollars.  This does not leave much room for life experiences and savings.  The OLD way of financing from years ago was 32% of gross income for Principal Interest Taxes and Heat costs, and 40% of PITH and all other outside debts.  Many of you are very, very close to this when we did your mortgage.  The Government again believes that this will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.

• The Limit of insurable mortgages to homes with a purchase price to less than 1 million dollars.  That one will probably not effect many in our area

• Home Equity Lines of Credit.  The maximum loan-to value on a HELOC will drop from 80% to 65%.  Again on a home valued at $350,000. the maximum secured line of credit that may be approved is $280,000.  NEW RULES  the maximum secured line of credit that may be approved is $227,500.  A whopping difference of $52,500.00.  The maximum limit on the line of credit is subject to subtracting any existing mortgage that may be in place.