New Mortgage rules… let’s make it an annual event!

The Minister of Finance, Jim Flaherty, announced some changes to Canada’s mortgage rules that come into effect March 18, 2011…… these rules apply to hi-ratio insured mortgages… those with less than 20% down payment….

-The maximum amortization is reduced to 30 years from 35 years.

-The maximum loan to value available for refinancing your home is 85%, down from 90%.

-Secured lines of credit (or HELOC’s Home Equity Lines of Credit)  will not longer be insured meaning the maximum loan to value will now be 80%.

Click here for the official government announcement.

Not the first time for mortgage rule changes.

This is becoming an annual event with the Government:

In 2008, the Govt reduced 40 year amortizations to 35 years, eliminated the 100% loan to value mortgages and the interest only mortgages.

In 2010, the Govt brought in some of their biggest changes yet…borrowers would have to qualify for variable rate mortgages or short term mortgages at Bank posted rates…Self employed individuals would now have to qualify with traditional income verification if they were in business for more than 3 years…. Refinancing would be capped at 90% loan to value, down from 95% loan to value… and investment properties or rentals would require a 20% down payment…

(By the way, the govt also announced they would be standardizing mortgage prepayment penalties… we STILL haven’t seen any announcement… Mr. Flaherty, you want to help Canadians?  Change the mortgage penalty calculations!)

Has the govt gone too far?

Apparently, rising personal debt levels are the driving force behind these changes… The govt wants to make sure we don’t borrow more than we can afford…. But with mortgage defaults well under 1.00% (that’s extremely good), why would the govt pick on mortgages?   After all, wouldn’t any Financial Advisor recommend that you consolidate your high interest credit cards, lines of credit, car loans, student loans and other personal debts into a LOWER RATE product?

Why isn’t the government making changes to loans, unsecured lines of credit, credit cards….?   All these products have higher rates of interest and higher rates of default.   Think about this for a minute… we are making it harder for Canadians to take lower interest rate products (mortgages)… Where will they go?   Yes, that’s right… directly to the higher interest rate products…. Credit cards, loans, etc….  (I think I might buy some Bank stock today… or any other financial institution that offer credit cards or loans.)

So let’s see if I’m getting this straight…. we want to stimulate the economy and spending so we’ll keep interest rates low… but we are concerned about rising personal debt levels so we’ll make it tougher to get a mortgage (even though mortgage defaults are extremely low)… but we’ll keep those high interest rate loans, credit credits, etc as is…..  Is this making sense to anyone?

We’ll be sharing more on this latest announcement in the coming weeks…

3 Responses to “New Mortgage rules… let’s make it an annual event!”

  1. Brad Miller Says:

    I’m looking for clarity on the new rules more than anything, we have 2 mortgages both CMHC insured and both purchased with 5% down on 35 year amortizations. When our mortgages come up for renewal if the loan to value on my homes is greater than 85% will I be faced with any problems?

    The 30 Year amortization maximum is fine as this is what my amortization will be upon renewal so this is a non issue but will it be an issue for those people that got into a 40 year amortization product? Will they just then be forced to a 30 year amortization and higher payments they might not be able to afford?

    • SG Says:

      Hi Brad,

      The new rules will not affect existing mortgages. There will be no issues for your mortgage at renewal time. These mortgages will be grandfathered and over time, the amortization will be within the new 30 year maximum.

  2. JH Says:

    However, if your mortgage is registered as a collateral charge, aka. TD Canada Trust, Scotia STEP, RBC Homeline then you will be stuck with them and force fed the rate of their choice. Unlike a traditional mortgage that is registered to your home as security, the collateral mortgage can not simply be switched at renewal. Since moving it would be categorized as a refinance…you are out of luck if you are over 85% Loan to Value.


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