How will the Mortgage Rule Changes Impact You?

By
Mortgage and Lending with Canadian Mortgages Inc

On July 9, 2012 new mortgage rules went into effect. Those rules included changes

to maximum amortizations on insured mortgages; the price of homes eligible for

mortgage insurance; changes to home equity borrowing and refinancing; and

changes to the maximum gross debt service ratio. But just what exactly do these

changes mean? How will the mortgage rule changes actually affect you?

 

Changes to Mortgage Insurance

The changes to how mortgage insurance is handled are some of the biggest, and

the ones people will feel the most. Mortgage insurance will no longer be available

for homes that are priced over $1 million; and while this won’t impact too many

people, and even fewer who won’t be able to afford it, there’s another insurance

rule that will have a much greater impact. That’s the rule that reduces amortization

periods on insured mortgages from 30 years to 25. Knocking five years off your

mortgage means that those who have less than a 20 per cent down payment upon

purchase have five fewer years to pay it off. And this of course, means higher

monthly payments for that time you are paying it off.

 

The amortization changes on insured mortgages also mean that those who need

insurance, and have less than a 20 per cent down payment, won’t be able to qualify

for a mortgage that they would have otherwise. This is because of the shortened

time length, lenders also take into consideration that you have less time to pay it

off.

 

Home Equity and Home Refinancing Changes

When the new changes took effect, the maximum amount allowed to be borrowed

on home equity loans including home equity lines of credit, and home refinancing,

was reduced from 85 per cent to 80 per cent. Of course, the effect this has is

obvious, and very simple in concept. Those who want to borrow against their home,

or need a new mortgage with a home refinance won’t be able to get as much

money as they once did.

 

Gross Debt Service ratio/Total Debt Service Ratio

These two ratios are used when a lender is trying to determine how eligible a

borrower is when obtaining a mortgage. Both of these ratios indicate how much

debt a person carries, and how easily they can pay it off. The higher the ratio, the

harder it will be to prevent default. And while the rule used to be that a person’s

total GDS could be 44 per cent, that’s now been reduced to 39 per cent. Even

though this sounds like a major change, it’s not one that’s going to affect a huge

amount of borrowers. This is because most lenders today are already been using 

the 39 per cent as a guideline, and have been for some time.

 

The new mortgage rules are going to affect just about all property buyers and

borrowers. But they will definitely affect some more than others and, if you’re going

to be on the mortgage market now or any time in the near future, you need to

know what your needs are – and what impact the new mortgage rules will have on

those needs.

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