If you have been sitting on the fence about whether now is the right time to refinance, you may not want to delay. This morning, Jim Flaherty announced three changes to mortgage financing in Canada that will affect you if you are purchasing or refinancing your home.
There are three areas that they are considering at this point:
1. They are reducing the maximum allowable amortization period from 35 to 30 years for government-backed insured mortgages with Loan to Values of more than 80%
2. Ottawa will lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
3. Ottawa will withdraw government insurance backing on line of credit secured by homes.
This one seems to be something that has really bothered the Bank of Canada for certain. Reducing the amortization if you believe the stats from the Canadian Association of Mortgage Professionals that only 30% of new mortgages happen at 35 years then it will have a moderate effect on Canadians. Overall, I believe this is going to mean less qualified buyers and first time buyers will be priced out of the market with current prices and trying to qualify at reduced amortizations.
Maximum refinance to 85%
This one is going to force Canadians to retain some sort of equity in their properties rather than using them to consolidate debts and be used as a proverbial ATM machine. This is a key strategy for the government to say to Canadians to keep their spending under control and to try to keep their debts under control. The options to consolidate debts into equity are going to be less and less
Withdrawal of government insurance backing on line of credit secured by homes
This point won’t affect very many people and is a very minor change.
Implications: Although the above changes are not expected to impact a large number of Canadians, personally I believe that the big loss is for those who are trying to refinance their mortgages into lower rates. Many clients opt to add the penalty to their mortgage and accelerate their payments, thereby reducing their principal balance over the term, saving back both the penalty, and extra thousands by benefiting from the lower rate. This strategy has saved many clients thousands of dollars over the remaining term of their mortgage. For many, the penalty added to the mortgage will be higher than 85% of the property value. PLEASE NOTE: CMHC purchases with 5% down are not affected by these rules. A purchase is treated differently than a refinance.
Certainly, if you are thinking of having your mortgage analyzed for a lower rate, or thinking about consolidating your debts, call me today. The changes will take effect in April, so it’s best to call now.
You may pass this along with my contact information should you think this would be informative to a friend, family member or business associate.
It is our commitment to continue to educate our clients and assist them with the best mortgage strategies in any market.
Courtesy of Sabeena Bubber, Mortgage Professional:604-862-8526
Interest Rate Outlook
In the face of slowing growth, muted inflation and lingering global financial instability, the Bank of Canada has held its overnight rate at 1.00% since September. Although the Bank’s medium-term objective of returning rates to normal long-run levels is still intact, the Bank will take a very cautious approach to tightening monetary policy over the next 6 to 12 months. Given that inflation is projected to remain subdued and growth is expected to slow, we do not expect any action from the Bank of Canada until the second quarter of 2011, if not later. Our current forecast is for the Bank of Canada’s target overnight rate to rise from its current level of 1.00% to between 1.75% - 2.00% by the end of 2011. Click HERE for the full report.
If you haven't yet received your 2011 Property Assessment, you will shortly. Whether buying, selling, or just home-owning, it is important that you understand that BC Property Assessments do NOT necessarily equate to market value ! At this LINK, there is an explanation as to why. Note that the assessments are as of JULY of the PREVIOUS year. The most recent major change in our marketplace was 2009's recovery over 2008's dismal year end. In comparing July 2010 to July 2009, then, BC Assessment would register a very large change in values, as the majority of their information comes from MLS sales. This is partially why most people will find that their 2011 assessment is up substantially over 2010. In reality, median price on the North Shore did not change substantially in 2010 (up 5% compared to 2009). Call us any time if you would like more information ! BC Assessment has all property assessments available online until March. Check out their website for more information. www.bcassessment.bc.ca