Well, as planned the governments rule changes are now in effect as of July 9th. Their timing was impeccable and by design, the announcements were made at one of the busiest holiday times of the year as well as at the end of the school year.
Most folks likely heard what was happening but didn’t pay much attention to what was going on or if it even affected them as they are scrambling with kids coming out of school and preparing for their annual road excursions.
To recap the rule changes, they are as follows:
– Amortization dropped from a maximum of 30 years to 25, meaning that if you qualify for a $300,000 or $400,000 purchase price today, you would qualify for $272,000 or $360,000 come July 9th.
– Refinancing to 85% of the value of your home (commonly known as Loan to Value LTV), has dropped to only 80% of the value.
– Limiting the gross debt service from 44% to 39% of your income, this has to do with your affordability.
– Mortgage Insurance for properties over $1 million dollars has been eliminated.
OSFI has changed the following and lenders have until their fiscal year ends to make the changes (Oct. 31st to March 31st, not that we expect lenders to wait that long):
– HELOC’s, the maximum LTV has dropped from 80% to 65%.
– Qualifying rates now affect mortgages without mortgage insurance, meaning one will have to qualify for the government of Canada five-year fixed even if they are taking mortgage insurance.
– Self-employed: Be prepared to provide even more documentation and reasonability for your income.
– Down payments: Cash back should no longer be used for down payments, this effectively limits 100% financing, and is one of the most common sense changes made.
These rule changes have brought with it longer wait times for deals to be reviewed by the insurers, especially CMHC, they are taking upwards three to five business days to review the volume of deals that was crammed in a short period of time.
Some say the changes were necessary, others say that they are there to affect a couple of overheated markets in Canada even though the changes are extremely necessary. The strange thing right now is that the unfolding of the EU problems are getting worse and the report from the OECD on July 9th state that Canada is on track for economic growth to weaken.
So even though the economy was going to slow anyway, the government figured they’d add fuel to that fire and slow the one economic engine that creates 19% of our current economic GDP.
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 or emailed to jturcotte@regionalmortgage.ca.
