Federal government changes mortgage financing requirements

Friday, February 25th, 2011


Last month the federal government announced three changes to the rules for government-backed insured mortgages.

First, the government will reduce the maximum mortgage amortization period to 30 years from 35 years. Second, the maximum amount of the value of a home that can be re-financed will drop to 85 per cent from 90 per cent. And finally, government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit.

“ These are prudent measures that promote responsible lending practices and further strengthen our internationally recognized mortgage finance system,” Jake Moldowan, Real Estate Board of Greater Vancouver president said.

Key dates

Changes to the maximum amortization period and the maximum refinancing amount come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes comes into force on

April 18, 2011.

Exceptions to dates

When the rules come into force, exceptions will be allowed where they are needed to satisfy a binding purchase and sale, or a financing or refinancing agreement entered into before the corresponding enforcement dates.

Here’s some additional information about the three changes announced by the federal government.

1. Reducing the amortization period to 30 years from 35 years. How much will the new rules cost home buyers? For home buyers, a shorter amortization period means higher weekly or monthly mortgage payments, but lower overall interest payments over the life of the loan. It should be mentioned that home buyers can still buy a home with a five per cent down payment.

2. Lowering the maximum refinancing amount to 85 per cent of the loan to value ratio. • Home price: $ 300,000. • Refinancing at 85 per cent: a home

owner can access up to $ 255,000.

• Refinancing at 90 per cent: a home

owner can access up to $ 270,000. • Total savings in home equity: $ 15,000.

3. No government insurance backing to financial institutions insuring home equity loans. To mitigate risk to the Canada Mortgage and Housing Corporation, lenders now offering multiple loans or a multi-segment loans secured against a borrower’s home, will no longer be eligible for government-backed insurance. However, loans with established scheduled principal and interest payments will continue to be eligible for governmentbacked insurance.

With all of these changes coming in the next few months, the public are encouraged to consult with their Realtor, mortgage brokers or mortgage providers to get a sense of what these changes mean to them. These changes are expected to have a small but important impact on the average home buyer’s budget, and should be taken into account when planning a home purchase.

For information, visit the Federal Department of Finance at www. fin. gc. ca.

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