On June 21, 2012, Finance Minister Jim Flaherty announced changes to current mortgage rules which will begin July 9th of 2012. The rules will not have any impact on existing mortgages... so unless you are in the process of purchasing a home or refinancing your current mortgage, you will not see any changes to your mortgage.
It is important to understand that the changes are targeted at mortgages insured by CMHC and other default insurers, which means they will not affect mortgages with balances equal 80% of your home's value or less:
i.e.; if you are refinancing your mortgage, and your home has a market value of $300,000, if the new mortgage balance will be equal to, or less than, $240,000 (80% of $300,000) then the new rules do not apply to you. You may still have an amortization of 30 years or less.
Also, if you are purchasing with a downpayment equal to 20% of the purchase price or more, the new rules will not affect you.
The new rules are as follows:
1. The maximum amortization period to 25 years from 30 years
2. The maximum amount of equity you can take out of your home in a refinance is being reduced to 80% from 85%.
3. The maximum gross debt service ratio will now be 39% and the maximum total debt service ratio will now be 44%. These are the debt vs. income ratios we use to determine how much of a mortgage you will qualify for and are relatively unchanged compared to current rules.
4. You will need a downpayment of 20% to purchase any home with a purchase price above $1,000,000 (this will have the greatest impact on Toronto and Vancouver housing markets)
I have listed some points below that may answer some of your questions and clarify a few key points:
* If you are purchasing a home and have entered into an Agreement of Purchase prior to July 9th, the new rules will not apply to you, even if the closing date of your purchase is beyond July 9th (those of you currently pre-approved for a purchase through our office should contact us to see what you will qualify for if you have not yet made an offer on a home).
* If your mortgage is maturing and your mortgage is above 80% of your home's market value, you will still be eligible to renew your mortgage with your current lender, or switch to a different lender (who may have a better interest rate) provided there is no increase to the mortgage. This is known as a "switch" or "transfer".
* If you have or are purchasing a new home with a downpayment less than 20% of the purchase price which is scheduled to close further in the future (i.e.; 1 or 2 years from now), as long as the mortgage was approved by the insurer (CMHC, Genworth etc...) prior to June 21st, the rules will not apply to your purchase.
When the government has introduced new rules for mortgages in the past we have always run into unique situations which have required us to communicate directly with the Ministry of Finance for exceptions. If you have any questions, please do not hesitate to contact us.
Thank you,
Jeff Laberge, AMP
Accredited Mortgage Professional
www.YourMortgageStaff.ca
