- Reduce the maximum amortization period to 25 years from 30 years. This will reduce the total interest payments made on your mortgage, helping you build up equity in your home more quickly and pay off your mortgage sooner.
- Lower the maximum amount Canadians can borrow when refinancing to 80 percent from 85 percent of the value of their homes
- Fix the maximum GDS to 39% and TDS to 44% when qualifying for a mortgage
- Properties purchased at over 1 million dollars are no longer eligible for mortgage insurance
Federal Government Changes to Mortgage Lending - June 21, 2012
For the fourth time in the past four years, the Federal Government has announced further action to restrict mortgage credit. The new measures include:
- The maximum amortization on a prime mortgage will be reduced from 30 to 25 years.
- Mortgage insurance will not be provided for properties valued over $1 million.
- Refinancing has been lowered from a maximum of 85% loan-to-value to a maximum of 80% loan-to-value.
- The maximum gross debt service (GDS) and total debt service (TDS) will be limited to a maximum of 39% and 44% respectively. Currently, GDS does not apply to qualified borrowers with credit scores over 680.
These measures will take effect July 9, 2012.
Implications for the BC home market:
- The new 25 year amortization will have a small but material impact on affordability for homebuyers. For a $300,000 mortgage, the shorter amortization period will add over $150 per month to mortgage carrying costs for homebuyers that would have instead opted for a 30 year amortization. This is equivalent to an approximately 1 per cent increase in mortgage rates.
- Longer amortization period may also impact the rental market where investors have utilized longer amortization period to lower carrying costs.
- Prohibiting mortgage insurance for properties over $1 million will impact Vancouver markets to a much greater extent than other Canadian jurisdictions. While this policy may have limited impact on credit access for high-ratio borrowers, it will tighten credit for the $1 million and over segment of the market through its impact on lenders risk management practices. This is particularly true in light of the CMHC already rationing portfolio insurance for low-ratio mortgages.