March 18th Deadline Could Spark a Stampede!
For the second time in twelve months, the Department of Finance has tightened rules on residential mortgages to help slow the pace of household debt accumulation.
New rules pertaining to mortgage financing were just announced by the Federal government effective March 18th. Here are the highlights:
- Maximum amortization reduced to 30 years from 35 years.
- Maximum refinancing limits reduced to 85% from 90%.
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No more ability for lenders to receive mortgage insurance on lines of credit (beginning
More details regarding these changes will no doubt trickle out over the next few days. Although the first two points are directly aimed at high ratio financing involving the mortgage insurers it will be interesting to see if any lenders eliminate 35 year amortizations even on conventional financing deals.
The first point will directly impact first time buyers as they are typically the segment of the market with the smallest down payments and are thus forced to have their mortgages insured. In the expensive Vancouver
The changes effective in 60+ days might spark a bit of buying in this segment of the market as they look to lock down mortgage approvals with 35 year amortizations before the deadline.
Homeowners with substantial equity and higher incomes have taken out extended amortization mortgages for maximum affordability and/or repayment flexibility (including many who actually pay down their mortgages quickly).
The cap on refinancing will have some impact on them, although it is too early to tell how much. It has been estimated that 35-40% of all refinances are used for debt consolidation so the government has effectively increased the cost of debt on the margin given that mortgage credit is one of the cheapest forms of debt consolidation in the marketplace.
Take note that CMHC purshases with 5% down are not affected by these rules because a purchase is treated differently than a refinance. There was substantial concern in the industry that the government was going to increase minimum downpayment requirements from the current 5% level to possibly as high as 10%. Thankfully, this didn't happen although it may down the road.
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