Tuesday, 26 June 2012

New Mortgage Rules-What does it mean to you?

This week, we have a piece contributed by Gianina Kumar, a mortgage advisor with CIBC which I hope you will find helpful and informative. Happy reading!

Submitted by Gianina Kumar, CIBC Mortgage Advisor

"Have you heard the buzz about  mortgages recently? What does it mean for you?

The mortgage changes announced June 21st that are to take effect July 9th may appear on first sight to be sudden, but they certainly are not.

Almost 3 months ago, Finance Minister Jim Flaherty advised banks to tighten lending guidelines on their own. Now, it has been formally announced that he will be doing it for them.

First, let’s look at what these changes are:

  1. The max amortization is now 25 years (previously 30)
  2. The maximum mortgage amount on a currently owned property can only be refinanced to 80% of the value
  3. Any properties over $1 million require a minimum 20% down payment (ie. not CMHC insured)

Clients that I assist with mortgage financing are impacted in various ways depending on their role as a homebuyer/owner.

For those clients that are in the midst of purchasing a home, the reduced amortization is equivalent to paying almost 1% more on the mortgage rate. As an example, for a household earning $75,000/year and no debt, this reduces the maximum mortgage by $49,000 (ref: Canadian Mortgage Trends).  Its important to note that anyone currently holding a pre-approval can still get a 30 year amortization as long as an offer on a property is accepted before July 8, 2012. 

In the case of existing homeowners that are looking to consolidate high interest debts or renovation costs into their mortgage, the total mortgage cannot exceed 80% of the value of the home.  Currently, homeowners would be able to increase their mortgage to 85% of the value of their property if they agreed to pay a small CMHC premium.  Effective July 9th, however, no mortgage can be increased to over 80% of the value. Another way of putting this is that all existing mortgages cannot be increased to the point where they would require to be insured through CMHC (ie. > 80% loan to value).  This will create a larger subset of people that may turn to alternative banks (ie. B-lenders) that offer higher interest rates for the benefit of a larger mortgage.  Some industry experts speculate that refinancing with CASHBACK will become more popular as people look to stay with their A-lender bank (ie. major 5 banks like CIBC, BMO, TD etc..) for a favourable rate but with more equity take out options.

Lastly for the minority of the Canadian population (the majority of which resides in Toronto and Vancouver) that purchase for over $1 Million will now require at least 20% downpayment.  It may sound grand, but realistically a million dollar mortgage doesn’t buy very much in large urban centres like Toronto and Vancouver.  

Amidst all the industry buzz over these changes are whispers of more changes to come. What is expected is stricter lending guidelines for self employed individuals, and potentially having to re-qualify for mortgages at term maturity.  

Stay tuned…"

Gianina Kumar is a mortgage advisor with CIBC and can be reached as follows:

TEL:     1-888-414-4874
FAX:     1-877-404-3117

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