Three months ago, Finance Minister Jim Flaherty told banks to tighten lending on their own. Now he’s doing it for them. The Department of Finance released a number of mortgage rules last Thursday that will mean large changes to housing in the years to come.
Their main purpose for these changes is to slow down the booming housing market, by restricting buying power, and reduce household debt without increasing interest rates. To stop there being a rush to get a mortgage prior to the rule changes, the government only gave until July 9th to implement the changes. So, if you haven’t made your purchase offer prior to this date and submitted for approval the changes may affect you.
So what are these changes?
1)High Ratio mortgages (less than 20% down payment) must have an Amortization of 25 years or lower. This was previously 30 years.
2)In order to qualify for a mortgage your GDS (Gross debt service ratio) must be below 39% down from 44%. This will lower the maximum mortgage some people can qualify for.
3)Refinances may now only go up to 80%LTV (Loan to Value) thus reducing the amount of equity you can access in your property.
4)Mortgages over $1 million can no longer be insured. Flaherty said ‘If someone can afford to pay a million dollars… they don’t really need CMHC. That’s not what CMHC is there for.”
5)Cash back down payment mortgages look to be a thing of the past. Those people without a 5% down payment are now removed from the market.
