New Mortgage Rules FAQ's Answered

There's been a lot of talk about mortgages this week and my blog has been no different. Just in case you don't know why, I'll fill you in, the mortgage rules have changed once again and took effect at the beginning of this week. Brennan Valenzuela from RateHub is back this month to answer your FAQ's regarding the new mortgage rules. Brennan, the floor is all yours....

According to recent report from the Globe and Mail, only half of all Canadians are familiar with the new mortgage rules that took effect July 9^th, 2012. The new rules were announced by Jim Flaherty on June 21^st, which gave Canadians just over two weeks to fully absorb the new information. As a result, only 45 per cent of Canadians surveyed were aware that the maximum amortization for insured mortgages had been reduced by five years, from thirty to twenty-five. The reduction of the max amortization was only one of the four new rules introduced by Canada’s Finance Minister.

Below, we detailed answers for some common questions that average home owners have asked.

1.)    How will lowering the maximum amortization period again affect me?

Limiting the maximum amortization period will serve three major purposes:

·         Reduce the amount of interest Canadians pay on their mortgages

·         Help families build up equity in their homes faster

·         Help people pay off their mortgages sooner

2.)    What if I already have an insured mortgage beyond 25 years? How will this affect me?

Canadians who are renewing their insured mortgages will not be affected by the new changes. For example, if you acquired a mortgage three years ago with a 30-year amortization period and are looking to renew today (i.e. 27 years remaining on the mortgage), your current mortgage can be renewed with a 27-year amortization so long as no new funds are being added to the mortgage.

3.)     What if I bought a pre-construction condo that won’t be built for another three years?

The new mortgage rules would not apply if you purchased your condo and made a mortgage insurance application* on or before June 21^st. After that date, the new rules will apply if the mortgage loan is not funded by December 31, 2012.

4.)    What if I transfer my insured mortgage balance to a new home after selling my current home?

The new rules will not apply when the insured mortgage balance is transferred from one property to another provided the following: the outstanding balance of the insured mortgage loan, the LTV ratio and the remainder of the amortization period are NOT increased.

5.)    Will a purchase and sale agreement dated before July 9^th be considered binding if there are outstanding conditions yet to fulfilled prior to July 9^th?

YES, if the purchase and sale agreement and the mortgage insurance application are dated before July 9^th, the new rules will not apply, even if the conditions of the agreement have not been waived.

One major reason the Canadian government introduced the new mortgage rules was to help reduce housing risk in the Canadian economy. From the words of Jim Flaherty, “the adjustments we are making today will help [households] realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended.”

Regardless of the new rules, it is important to always do your homework when evaluating your affordability before purchasing a new home. Whether the housing market is red hot or ice cold, you still need to compare mortgage rates in Canada to reduce the interest payments on your mortgage loan. To calculate your mortgage costs with new rules, use Ratehub’s mortgage payment calculator.

* A mortgage insurance application is a document sent by a lender to a high-ratio mortgage insurance provider (CMHC, Genworth Financial, or Canada Guaranty Mortgage Insurance)

Did Brennan do a good job answering your questions? Do you have any other questions regarding the new mortgage rules?

Just in case you missed Brennan's post last month, no sweat, just click here, he discussed social media and mortgages.

For more information make sure to follow RateHub on Twitter @RateHub_Canada and stalk, I mean like them on Facebook.

Thanks and see you next month Brennan!