Jim Flaherty announced new mortgage financing rules for home buyers and home owners wanting to extend/obtain secure lines of credit. In a nutshell, mortgages with amortization periods longer than 30 years will no longer qualify for government backed insurance which is required for all mortgages with less than 20% down. Also, Canadians can only borrow against 85% of the value of their homes from 90% on a refinancing. Read full story here.
I don’t think this is going to be a big deal in terms of prices or units sold. 25 year amortizations were the norm for so long in this country and few questioned it. As a group Canadians are a conservative lot most of the time and I was more surprised when CMHC started underwriting 35 and 40 year amortizations.
At first glance, the people who might be affected are those who bought with a 5% down payment and a 35 year amortization. When the term on those loans are up they might be impacted but the Finance Department announced that they would be exempt from these changes as long as they simply renew and don’t refinance at time of renewal. It is a good idea to consult a knowledgeable mortgage broker when it is time to renew your mortgage.
A mortgage broker can outline your various options and the penalties if you decide to sell before the next renewal term. Your mortgage term could be 1 year, 3 years or 5 years and again a mortgage broker can recommend which term is best suited to your needs. Mortgages are very personal and the rate should not be your only concern. You could have a low rate but a very high penalty if you sell and cancel the mortgage before the term is finished.