New mortgage rules take effect July 9th for all government backed insured mortgages in Canada. Highlights of these changes are as follows:
- All insured mortgages (less then 20% down payment) have now had amortization max reduced from 30 years to 25 years.
- Maximum refinancing on insured mortgages goes down from 85% LTV (loan to value) this means you must have at least 20% equity in your home to be able to refinance.
- Maximum purchase price for insured mortgages has been capped at 1 million.
How does it affect people with current insured mortgages greater then 25 year amortizations (those who started at 40 or 35 or 30? It doesn't, provided they renew and do not alter any terms of their mortgage, otherwise they are bound by the new rules.
Conventional mortgages (meaning those with at least 20% equity) will still be eligible for 30 year amortizations.
- So starting on Monday, Canada will no longer have a 30-year amortization available on any insured mortgages.
- Banks and mortgage companies will continue to provide 30 year AM on conventional deals.
- Million dollar properties will need purchasers to come up with at least 20% in order to buy.
The last few years we have enjoyed 40-year , 35-year and 30-year amortizations. Changes withdrew each of them at various times. Most recently last year the 35-year amortization was completely taken away. Consumers adjust. We all do.
Just brings us back to what we originally had as our only option years ago. It will obviously impact consumers as their purchasing power will be less due to qualifying at reduced amortization, and obviously increased monthly payment. However, the positive is, the principle balance of their mortgage will decrease quicker. The increased payment reflects additional savings on the principle and more equity growth for the homeowner.