New Mortgage Rules by Winni
On January 17, the federal government announced another round of tightening in mortgage rules. Ottawa will reduce the maximum amortization period to 30 years from 35 years for government backed insured mortgages with a loan-to-value ratio of 80 per cent or more. In addition, the federal rules will lower the maximum amount we can borrow in refinancing our mortgage from 90 per cent to 85 per cent and thirdly, the government will no longer insure lines of credit secured by homes.
This move is aimed towards the reduction of Canadian household debt, which surpasses even the household debt of U.S. home owners, with a ratio of owed money compared to disposable income at a level of 150 per cent. These arrangements allow the Bank of Canada to fight household debt, but are also likely to hit people with high-interest debt (especially those who are paying it up with home equity lines of credit). In British Columbia, where 40-year mortgage amortization was very popular because of the province’s highest real estate prices, many people who planned on buying won’t be able to bid the same price on a house.
Since 1992, when amortization periods had been set to a maximum of 25 years, the government has increased the maximum period to 30 years in 2005, 35 years in 2006 and 40 years in 2007. The 40 year term was cut back to 35 years last year, followed by the recent tightening that will take effect on March 18, 2011. Finance Minister Flaherty hopes that it will deliver “some moderating” effect on the housing market.
Hello Jay,
Saw your listings and Sales on your website and then read your article “Mortgage Rules to Hit Vancouver”.
Do you think the new mortgage rules will make a large drop in sales and prices In Richmond, Vancouver and North Van?
At this time is it a good time to sell, or hold or buy?
Will banks be extending 35 year amortiz for buyers with 20% or higher d/payment after March 2011?
And, have banks clarified if they will allow 35 years for Non-High Ratio mortgages?
Thanks and I look forward to your reply.
Regards
Fred
Hello Fred,
Sorry for the delay.
Starting from the bottom of your comment: As you know, banks can sell any products that do not conflict with the law. This means that some banks will probably continue to sell longer term mortgages where the ratio is lower. So yes, if you have saved up money to make a larger down payment, it is good for you to wait. After March 18, you will have a new bidding advantage over people who cannot afford to make a large-enough down payment out of pocket.
That said, it is hard to predict what banks will do at any point, isn’t it. I will try to look into this as banks start responding to this announcement as well and will bring the news in a post on my blog.
I think that the prices and trade volume may go down slightly, since there will be fewer and less generous offers out there. Once prices sink a little, though, your money will be worth more house and you will possibly qualify for a longer-term loan, right?
You must remember, however, that most people who are selling houses also look for a house to buy. For this reason, the marketplace will hopefully compensate you for a smaller selling price by a smaller purchase price.
If you have an extra home that you are planning to sell, you may try to sell it now. We are yet to see whether there is any mass-selling to come. I doubt that, but if many people decide to sell before March 18, the prices will drop sooner.
In a nutshell, if you’re planning to buy, wait and save up for the down payment. If you are planning to sell, start preparing quickly to be ready for the market changes and be ready to sell if you get the chance.
Please contact me or my team if you are indeed planning a specific transaction and we will be happy to walk you through the entire home trade.
Good luck,
Jay