If you are in the market for a home or are considering refinancing your home right now, you are certainly aware of the deadline that’s looming ahead. On March 18, the new mortgage rules come into effect, so you can say goodbye to the insured 35 year amortization, and if you are refinancing, you can only access up to 85% of the value of your home.
In less than 13 business days, qualified borrowers will need to have their lottery ticket like pre-approvals submitted to the insurers so that they can take advantage of the soon to be extinct programs. This means if you are buying a home, you must have a live offer on a home and it must be submitted to your lender that holds your pre-approval so they can present it to one of the mortgage insurers on your behalf. Your pre-approval certificate from your lender simply doesn’t cut it; it must be a live deal as the insurers don’t offer pre-approvals.
The five year drop in amortization essentially means an average increase in monthly payments of $100 if you are unable to take advantage of the 35 year program and had to take the 30 year amortization. Also, if you had qualified for a $300,000 mortgage prior to the deadline, and that was your ceiling, then you’d only qualify for about $280,000 depending on your interest rate and property tax amounts.
Now this isn’t the worst news that could happen to the housing market as the government is doing this because our housing industry is actually quite healthy as Canadians can afford the five year reduction in amortization, but we also have to look at long term sustainability in the industry.
That being said the Canadian economy is currently one of the strongest on the planet as 2010’s GDP figures outpaced forecasts, and the economy grew 3.1% in the last quarter of 2010 and grew a full 3.3% for the year.
With this positive economic information, look for even more interest rate hikes as bond traders will see this as a feeding frenzy and push for higher returns in the bond market, which is the major indicator for fixed mortgage interest rates. The higher the bond rate, the higher the fixed interest rate, as banks and mortgage lenders obtain large chunks of their mortgage capital from these markets. So when their cost of funds goes up, the consumer is the one that ends up paying in the end.
There are some out there that predict that housing values in Canada will fall slightly after the magical date of March 18th, but I’m going against the grain on this one for the Alberta market. Major markets like Vancouver and Toronto will likely see values drop as affordability in those centers will definitely tighten up as they are stretched so thin to begin with. But here in Alberta, our incomes in comparison are higher than the average and if you look at the help wanted ads in the papers, that section seems to have doubled in the past year along with radio ads for companies hiring.
With the Canadian economic engine running full steam ahead an increase in interest rates is inevitable, but this also means that more people are working, and when more people are working more people are buying houses…and they’ll do so even after this deadline.
Yes there is a major opportunity to buy in the housing market right now as responsible Canadians can take advantage of 35 year amortizations, but the bigger animal in the closet here has more to do with where interest rates are at, if you have a pre-approval below 4.19% and don’t’ take advantage, you’ll be kicking yourself in the butt when they are at 5%…and that’s not that far away!
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125, texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.
