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.
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Courtesy of Sabeena Bubber, Mortgage Professional:604-862-8526