With little surprise in Canada, the Minister of Finance has finally made a formal announcement that there will be significant changes to mortgage lending. The main changes are a decrease in maximum amortizations from 30 to 25 years and a maximum loan-to-value refinance amount for your primary residence to 80% of the home's value (down from 85%).
What are some of the practical implications?
1. For first-time home buyers (especially in Guelph or the surrounding area), it's difficult to find a detached, suitable home for under $260,000. The shorter amortizations will decrease a person's borrowing capacity and purchase price by approximately $40,000. The exact date of the changes is unknown yet; however, if someone has been pre-approved for a mortgage 4 months ago, be sure they call their mortgage broker and speak to them about their maximum purchase price.
2. Qualifying to purchase a rental property has tightened in the last 6 months. We have seen most lenders go to sticker uses of how rental income is used in qualifying someone for a new mortgage loan. The shorter amortizations will also limit one's ability to purchase rental homes. In Guelph, we've seen a surge in prices for rental properties. The change in shorter amortizations may cool rental property prices.
3. Refinancing to only 80% of the value of your primary residence will limit one's ability to take equity out of their home to pay-off debt, or to purchase other properties. For example if a home is worth $350,000, under the new guidelines, the individual will have access to $17,500 less equity.
2 comments:
Well he proves once again how out of touch he really is. Let's see, he went from 40 year ams to 35....then 35 to 30 and now 30 to 25 year ams and nothing seems to be killing the market. I wonder why, could it be that for the vast majority of Canadians the only wealth they have accumulated over the last decade is in their homes and those that don't own one see that fact plain as day. He should focus on the real problem for most people which is consumer debt (credit cards, lines of credit, payday loans etc) that is where the problem lies for most people. Assuming that there even is a problem, and poor Jim isn't just reacting to spending far too much time with his European counterparts. In the end it won't do much since people already know that their stocks, mutual funds and LOL.. their RRSP's
are not the golden egg that we were led to believe. Home ownership and Real Estate investment are one of very few ways for the average person to get ahead financially anymore and even Dim Jim can't fool us with his "Chicken Little " dance anymore.
This is such a great post about mortgage financing Leduc, so keep on posting!
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