Mortgage rules and you

Turners Tips is pleased to provide another article from Taya Welszhaar moc.prgegagtrom|ayat#moc.prgegagtrom|ayat which gives us insights into Canada's new mortgage rules and how it affects you.

So here it is: We now have new mortgage rules in Canada for high-ratio mortgages - those insured mortgages that require less than 20 per cent down payment. The new rule reduces the maximum amortization of the loan, which means instead of having the option of spreading your mortgage loan over 35 years, which reduces your monthly payment, the amortization period is now capped at 30 years. Assuming a 4 per cent interest rate, this means approximately $34.72 higher each month for every $100,000 in mortgage.

But all is not lost. While this may add a challenge for some first time home buyers who will have to either come up with a higher down payment or look for a lower-priced home, the changes did not change the minimum down payment threshold (of 5%) or eliminate one's ability to borrow a down payment. That means borrowers can still get their 5 per cent down payment from lenders who offer cash-back down payment programs. And there are lenders not bound by the insurance restrictions who will still offer 35 year amortizations. The reduced amortization does not affect conventional mortgages - those with a 20 per cent down payment. If you are a first time home buyer, it's important to get a binding purchase agreement before March 15 if you want to take advantage of the current mortgage rules.

Another new rule is for refinances. Many of you have refinanced to consolidate debt, to renovate your home, or to start a business. Once you could refinance up to 90 per cent of the value in your home (before April 2010 you were allowed to refinance up to 95%), now you will only be able to access 85 per cent of its value.

A small number of niche lenders still offer uninsured refinances to 90 per cent loan-to-value. As time goes on, we can expect additional specialty lenders to hit the market with second mortgages up to 90 per cent. Working with a mortgage broker is your best option here because they have access to many different lenders and different mortgage programs.

Lowering the refinance threshold to 85 per cent will impact less than a tenth of all refinances. If you're one of those affected, it means you'll be able to refinance an average of $17,228 less debt based on the typical Canadian home value. The average Canadian has $25,163 in non-mortgage debt.

The final mortgage rule change has to do with the HELOC, or Home Equity Line of Credit. The government will not be insuring these as of April 18. If you have one of these before April 18, when the rule comes into effect, they will be unaffected. They will be insured until they are discharged. The unfortunate thing about this new rule is that instead of accessing the equity in your home through a HELOC, and paying a relatively low interest rate, you will likely have to get a higher interest unsecured loan if you need to consolidate debt beyond 85% loan-to-value.

Now is the time to speak to your mortgage professional to finalize your 2011 mortgage plan. Analysts are anticipating a burst of activity before the new rules are implemented. With interest rates anticipated to remain where they are until the spring, it may be a good idea to take a look at your home ownership goals for 2011.