I’m probably the last person to do a blog post about the new mortgage rules taking into effect in Canada, considering the news was announced last Thursday morning, but here’s my summary and take on it for what it’s worth! By the way, does it count if I tweeted about it Thursday morning?
The new rules are as follows:
- CMHC will only insure mortgages with a purchase price under $1 million
- Maximum gross debt service ratio (GDS) will be capped at 39% (previously there was no maximum with credit scores over 680) and maximum total debt service ratio (TDS) is at 44%, which remains unchanged
- When refinancing your home, maximum equity one can take out is 80%, reduced from 85%
- Amortization is being cut from 30 years to 25 years on all new high ratio mortgages (mortgages with less then 20% down payment)
A few key points:
- Most people who buy $1 million plus homes usually put 20% down anyway, it’s scary allowing people to purchase million dollar homes with only 5% down
- Changes to take effect July 9, 2012
- For anyone who has received a mortgage approval with CMHC and is not closing before July 9, 2012, the 30 year amortization will still be honoured
- For anyone receiving a new mortgage approval from now until July 9,2012 will still be able to receive the 30 year amortization
- For anyone renewing their mortgage term, you will be able to receive the same amortization as you currently have, provided the loan/mortgage amount doesn’t change. (This is a general statement and each situation should be checked with your individual lender)
- You can still get a 30 year amortization period so long as you put down 20% or more
So what does this all mean? Was it the government’s way to increase interest rates without actually increasing interest rates, because of a struggling world economy? Was it a way to cool down the already cooling housing market, especially in Toronto? Everyone has an opinion of the “whys” and I’m no different.
I have very mixed feelings, on the one hand, I feel like our government is being proactive and involved in preventing a housing crash similar to the USA, but on the other hand, I feel like these new rules may not be the right steps in preventing a housing crash. Tim Hockey, head of retail banking for the Toronto-Dominion Bank (TD) said,
***Image via Your Money***