We have all heard about the new mortgage rules that came into effect recently. They are aimed at strengthening the Canadian mortgage industry and protecting its stability. These changes would have had a significant effect on the housing market.
The most notable change in mortgage rules is that the amortization period for CMHC’s insured mortgage loans (supported by the government) has been reduced by 5 years (from 30 to 25 years). This means that mortgages will be repaid faster by borrowers, but their monthly payments will be higher (see image below).
Canadians who would like to refinance their homes are also affected by this new regulation. Home equity loans can only be offered for up to 80% of the value of a property, down 5% from the rules prior to July 9th. ABD (gross debt amortization) and DTA (total debt amortization) are ratios used for qualifying for mortgages. Their limits were changed to 39% and 44% respectively.
Finally, buyers who are looking for a mortgage of one million dollars or more must provide a deposit of at least 20%. In addition, no mortgage insurance from CMHC will be provided for these loans.
These new mortgage rules were put in motion to slow down the Canadian housing market. These actions are designed to ensure the long-term stability of Canada’s housing and mortgage industries. They also aim to provide long-term savings for Canadians (Canadians save on mortgages with shorter amortization periods, even though their monthly payments are slightly higher).
I’m looking for a first mortgage, what can I do?
These new rules have tightened the mortgage market and, now more than ever, we encourage you to seek financing through a mortgage broker. Mortgage brokers offer many benefits to homebuyers as they have access to lenders, non-advertised products and rebates.
I already have a mortgage, how does this apply to me?
The new mortgage rules apply to you if you transfer your mortgage, refinancing or renewal.
Old mortgages with longer amortization periods (30 or 35 years) can be renewed by lenders, as usual, if the mortgage terms remain the same (if you want to change lender, they may not be able to not to qualify you). If the borrower wishes to increase the amount of his loan, the new rules will come into effect.
To learn more about the new mortgage rules, talk to one of our mortgage specialists. We can help you plan your next step and save even more.