New Mortgage Rules [mortgageinsuranceguide.blogspot.com]
The Government of Canada has announced more changes to government-backed insured mortgages in the hopes of limiting the amount of household debt Canadians have and to cool the housing market further. Four changes were announced and will come into effect on July 9, 2012. 1. Reduce the maximum amortization period to 25 years from 30 years. 2. Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes. 3. Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent. 4. Limit the availability of government-backed insured mortgages to homes with a purchase price of less than million. With all things taken into account, here is my take on everything. First, the price for properties is going to cool down. Every conversation I hear from people is that we are in a housing bubble but major lending institutions tha t I've had the privilege to chat with tell me that's not the case. So this is the government just trying to quell the concerns of people and limit the amount of Canadian debt. This in turn is making it harder to sell houses and get approved for mortgages. Now more than ever, you'll need to make connections which skilled, intelligent and educated mortgage agents who can successfully underwrite you mortgage. People who used to be great candidates may start getting turned down from major lending institutions which will further hamper their credit. Because ...
mortgageinsuranceguide.blogspot.com June 2012: New Mortgage Rules!
Frank and Susan Williams bought a house near Hamilton, Ont., this month, they followed a time-honoured tradition of using leveraged financing. With mortgage insurance they only had to put down 5% of the $ 270,000 purchase price. They went with a closed variable rate at 2.25% and amortized the loan over 35 years. The deal was initiated with a mortgage broker, with Bank of Nova Scotia providing the financing. "It's a three-bedroom bungalow. That was attractive to us. We have a dog and we like to do things in the backyard. We did not have the type of money we thought we'd have to put into a house. We said let's just bite the bullet and get this over with," Ms. Williams says. And getting it over with was probably a good idea. First, they were in a rent-to-own arrangement and had to exercise their option to buy before August 2010. And second, based on pending federal rules for government-backed insured mortgages that come into effect on April 19, the Williams would probably no t have qualified for the variable-rate mortgage.
In fact, as recent arrivals from the United States and its housing crisis, their credit history might not have passed any stress test. "We really came from the United States with nothing. Everything we had disappeared with the housing crisis. In areas that had bad loans all the houses just hit bottom. We were expecting US$ 250,000 out of our house but we got nothing," Ms. Williams says. They walked away from the whole mess. But while the Williams might have had good reasons for leveraging to get their dream home -- they are firsttime buyers in Canada -- the new federal rules governing mortgages have been widely misunderstood. In fact, the biggest fear among the young and house-less is fear itself. Under current mortgage-lending rules, buyers with a down payment of less than 20% of the purchase price must purchase mortgage insurance, with the most common source being Canadian Housing and Mortgage Corp. The new rules affect only customers that are required to purchase the insurance. Under the new rules, all buyers requiring mortgage insurance will have to meet the "ability to pay" for a higher, more expensive five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and a shorter term. "It's not just first-time homebuyers who are affected. It's anyone who wants a variable mortgage rate now who doesn't have one already, they now have to qualify at a higher interest rate. Some of them won't qualify. And that's fine so they'll just take a fixed rate. It's not the end of the world," Ms. Wynhofen says. Bernice Dunsby, director of home equity financing at the Royal Bank, says the new rules might even help save first-time buyers from themselves. "We believe the new measures will have a small impact on mortgage growth, if any. First-time buyers should not be any more concerned about these changes. In fact, I believe the changes will actually help first-time homebuyers to ensure that not only can they afford their home today but in the future, especially if interest rates rise," says Ms. Dunsby. Recommend New Mortgage Rules Topics
