The Mortgage Centre views on the new Mortgage Rules
THE TRUTH IS it won’t be harder to qualify for a mortgage!
This morning the Federal Finance Minister announced further changes to Canada’s mortgage insurance rules. Four measures were announced:
• The maximum amount that Canadians can borrow when refinancing their homes was lowered to 80% from 85% of the value of their homes.
• The maximum amortization period was lowered from 30 years to 25 years.
• Households are now being constrained to a maximum gross debt service ratio and maximum total debt service ratios of 39% and 44%, respectively.
• Government-backed insured mortgages will now be only available on homes with a purchase price of less than $1 million.
• These new rules will take effect on July 9, 2012.
So what does this all mean in terms of qualifying for home buyers or people looking to increase their mortgage?
Based on a purchase price of $300,000 with 5% down payment and the current maximum of 32% of gross annual income to carry a mortgage, you would need a gross annual income of $60,400. This is based on the current 30 year amortization period. When the new rules kick in with the maximum amortization of 25 years and maximum 39% of gross annual income to carry a mortgage, you would need a gross annual income of $54,369.
If you want to refinance your home and it is valued at $350,000 today you could refinance your mortgage to 85% of the value which equals $297,500 vs. the reduced limit of 80% which would limit you to a refinance of $280,000. In the first example your mortgage would have to be insured and you would have to pay a premium of 1.75% of the total loan which would equal 5,206.
In the end these changes won’t have a real negative impact on most home buyers and home owners. These measures are a prudent step in terms of the overall Canadian economy. Here in Guelph and surrounding area we continue to see strong employment and a healthy housing market. A bubble here is an unlikely prospect.
If you need some advice on our current situation, do not hesitate to call.