How The New Mortgage Rules Affect Canadians

by Pam on September 19, 2012

Although the rules for mortgages in Canada changed effective July 9th, I wanted to highlight some of the changes for you in case you missed them when they were first introduced.

What’s changed?

Under the rules that went into effect, borrowers are allowed to use up to 80% of their property’s value as collateral for home-equity loans, down from 85%.  This means that Canadians can’t borrow as much as before from their home’ s equity.

In addition, the maximum amortization period dropped to 25 years from 30 years for government insured mortgages.  Note that the 30 year amortization is still available for mortgages as long as the buyers make at least a 20% down payment.  It is only the government insured mortgages that are affected.

In other words, before you could pay off your mortgage in 30 years even if you had to insure it with CMHC (meaning you put less than 20% down when you purchased your home).  Now, however, if you put less than 20% down, the longest timeframe for paying off your mortgage is 25 years.  But, if you put at least 20% down on your home, you can still take as long as 30 years to pay back your mortgage if you choose to.

Finally,  homes worth more than $1-million are no longer eligible for CMHC-backed mortgages.  So if you are planning on buying a million dollar home, you must come up with at least a 20% down payment.

What’s the purpose of these changes?

Canadian households are taking on more and more debt and in order to prevent Canadians from making the mistake of buying homes that they cannot truly afford, the government implemented more stringent mortgage rules.

To learn more about the mortgage changes and how they may affect you, you can check out the following links:

CBC

http://www.cbc.ca/news/business/story/2012/07/09/bmo-mortgage-housing.html
The National Post

http://fullcomment.nationalpost.com/2012/07/10/new-mortgage-rules-make-it-harder-to-spend-money-the-government-lent-you/

The Globe and Mail 

http://www.theglobeandmail.com/report-on-business/top-business-stories/how-jim-flahertys-new-mortgage-rules-will-sink-house-prices/article4359156/
The Vancouver Sun

http://www.vancouversun.com/life/Financial+advisors+unconvinced+mortgage+rules+better/7011018/story.html

RBC

https://www.rbcadvicecentre.com/new-mortgage-rules-what-they-mean-for-canadians

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