Finance Minister announces new mortgage rules.

Posted by: Tamer Fahmi in Ontario, Market Activity, Government, Future Outlook, Economy, CREA Canadian Real Estate Association, Burlington Real Estate, Announcement on Jan 18, 2011  

 

Jim Flaherty, Minister of Finance, and Christian Paradis, Minister of Natural Resources, announced the following adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada's housing market.

  • Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
  • 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. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
  • Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit (HELOCs). This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

 

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

 

Here are some simple strategies, tips and messages that will help to make the right decision for your new mortgage:

 

Consider a shorter amortization:

  • The shorter the life of the mortgage, the less you pay in interest.
  • Become mortgage free faster and begin saving more for retirement.

 

Make sure you can afford what you signed up for:

  • Stress-test your budget using a mortgage payment based on a higher rate.
  • Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.

 

Make a larger down payment:

  • If you can provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage.
  • With a down payment of at least 20 per cent, you avoid paying mortgage default insurance(CMHC fees).

 

Make pre-payments when you can:

  • Pay weekly or bi-weekly instead of monthly.
  • Increase your mortgage payment (principal and interest).

 

Think carefully about fixed vs. variable:

  • While variable-rate mortgages have been a winning strategy over the long term, fixed-rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.
  • Pay down short-term debt before taking on a major financial commitment such as buying your first home or upgrading to a larger home.

 

I am here to guide you to make the right decision with your mortgage, and understand your situation. If you have any questions, please feel free to call me.

 

Glenn MacLaren

Mortgage Specialist

BMO Bank of Montreal

1841 Walkers Line, Burlington, On

L7M 0H6

Phone: (905)691-3730

Fax: (905)336-1328

 


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