New Mortgage Changes will have an Effect on Vancouver Housing.
The Department of Finance and Federal Regulator is known in short as OSFI (Office of the Superintendent of Financial Institutions) and is an independent agency of the Canadian Government. They are once again changing the rules of the real estate game (when CMHC is concerned) due to growing concern regarding consumers’ debt levels in Canada. Some of these new rules will take effect July 9th, 2012, which does not give affected consumers much time! As is often the case, these new rules will have an effect on some of the people in the market, some real estate investors (especially if you have more than one property), people with credit problems, some first time buyers and the self-employed.
To provide a little context, recent economic conditions (starting in 2008) required the Bank of Canada to keep interest rates low to spur on Canadian economies. As a result, we have been at record low interest rates which have given borrowers/consumers the ability to load up on significant debt, at low rates. Understandably, this has pushed along sectors of the economy, particularly the housing market.
The intention of the low rates was to give the economy a “shot in the arm” but due to global circumstances this has become more of a “normal rate” rather than a short boost. The continued economic woes of the world have the Bank of Canada pinned down and even if they wanted to raise rates they cannot or will not, for fear of what that would do to our domestic economy. Here is the problem: as rates eventually rebound to a truer or normal (higher) rate, many Canadian’s will become over extended. So as the once cheap or affordable debt levels rise, it could push some beyond their means and beyond their ability to repay the debt. This is where the government regulation is attempting to “save” Canadian’s over the long run, by putting together more stringent regulations today to take some of the heat off of the market and soften the blow in the future.
Here are the new mortgage rules effective July 9, 2012:
– Amortization periods will be lowered from a maximum of 30 years to 25 years. *As of the writing of this article please note that if you are not high ratio (5%-19.9% down) you do not need CMHC to insure your mortgage and you can still get a 35 year amortization with banks like Merix or ING!
– The amount of refinancing permitted on your home will be 80%, lowered from 85% of the home’s value (this make scense because banks do not want you refinancing back into a high ratio mortgage).
– Government-backed insured mortgages (CMHC) will now only be available on homes with a purchase price of less than one million dollars.
– Households are now being restricted to a maximum gross debt service ratio of 39% and maximum total debt service ratios of 44%.
OSFI changes to be implemented by the end of the lender’s fiscal year are as follows:
– HELOCS (Home Equity Lines of Credit) will be limited to a maximum of 65% of the home’s value (formerly 80%).
– Qualifying rates for “Conventional” mortgages will now need to be at the “Benchmark Qualifying Rate” if the term is less than 5 years
This aligns with insured mortgage requirements released in April 2010.
– “Stated Income” programs will be eliminated all together.
– Cash Back mortgages (100% financing) will be eliminated.
(Clients will need a minimum 5% down from own resources or as a gift.)
Some people’s pain will be other’s gain.
While the “math hammer” will knock a few buyers out of the running and in the short term the housing market will slow…other well-prepared buyers may be able to find good deals on good properties. So, it is a good time to get off the fence as a buyer and make a deal!!!