New Mortgage Rules Now Official

Jim-Flaherty2Effective March 18, 2011, it will become harder to buy a new home or consolidate debt into your mortgage.

That’s due to three new changes announced today by Finance Minister Jim Flaherty:

  1. A 30-year maximum amortization on insured mortgages over 80% LTV
  2. An 85% LTV limit on insured refinances
  3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

Flaherty says these regulations are meant to “(encourage) hard-working Canadian families to save by investing in their homes and future.”

Here is the full press release.

More to follow…

  1. I think the 30 year amortization is for the most part a good idea as 35 years would have many people still paying their mortgage beyond retirement (if they don’t regularly put additional funds on mortgage and never reduce the am at renewal). Personally I (in most cases) advise my clients against amortizations over 25 years.
    Not entirely sure how I feel about refi’s being reduced to 85% as I think they probably could have left it at 90%.
    I understand why they eliminated insurance on HELOC’s and this can be both good or bad in my opinion. Sometimes clients get into bad situations with debt where they need some good advice and sometimes the best advice is to take out a HELOC (sometimes upto 85%) as this could mean that the debt would be paid off sooner and also free up some cash each month which can go into savings or down on their mortgage.

  2. These are abhorrent changes. The banks and Flaherty should be assamed of themselves for wiping out people’s ability to eliminate brutal credit card debt and keep their payments low. Flaherty’s twenty-four carat smile can’t mask what he’s really thinking: “I’ve just been played by the big banks.”

  3. The government playing God again.. Canadian household debt is out of control – one way to control and rectify the situation is by utilizing your earned equity in your home – it’s the client’s net worth they are playing with. I think they are just setting themselves up for an increase in credit card delinquencies.. Default management has nothing to do with most individuals that qualify anyways…
    30 year am and HELOC changes understandable..
    How about addressing the problem at the source – the sole high cost of living in 2011 including gas prices and taxes!

  4. How exactly did these changes wipe out people’s ability to eliminate credit card debt? They can still take out a HELOC, just for less and without govt insurance which never made any sense anyway. After all, govt insurance was to buy a house, not buy other stuff with your house as collateral. This shouldn’t affect that many people anyway.

  5. The banks and Flaherty should be assamed of themselves for wiping out people’s ability to eliminate brutal credit card debt
    What a funny way to put it. Oh the brutal credit card debt! I demand the government save me from this debt that was totally not my fault for getting into!
    If you’re piling on credit card debt and need to roll it into your mortgage to survive, you’re living wrong.
    Yes, it can be useful for some people when they hit bad times, but the reality is that in the vast majority of cases people are using their house as a piggy bank because they are living beyond their means. Most people could easily cut back and spend less.

  6. Rob – Thanks for keeping up the good work. Really enjoy the blog.
    Are lenders (largely Big 5) offering more than 120 day rate currently, for typical mortgage (i,e NOT no-frills)?
    Given that new mortgage rules kick in Mar 18th (after 60 day notice) plus the 120 day rate hold, looks like the Spring 2011 market would be a buoyant one, on the back of a weak Summer 2011. A repeat of 2010!

  7. NBC offers 180 days rate hold but obviously at an increased cost. Some major banks offer longer rate holds if your home is brand new and won’t be ready for a year or more.

  8. Looking for some advice as I’m a little clueless when it comes to this stuff. Our current situation: variable prime -.9, due to renew Jan 2012, hoping to borrow maybe 40-50k on equity to do some renos. Should I be talking to someone now or wait?

  9. This announcement seems like two faced political grandstanding to me. “Helping” to concur large debt loads by restricting the best place for consumers to get good interest rates and professional advise from a Mortgage associate, rather than concuring credit card companies lending policies…. where you are on your own and gouged.
    Who’s in the big banks’ pockets?

  10. “An 85% LTV limit on insured refinances”
    Does this apply to my case: I took out a 5-yr fixed-rate, 40-yr amortization, 100% LTV mortgage a few years ago. When I renew my mortgage next year, am I now restricted to borrowing just 85% LTV?

  11. Yes you should be talking now if that 40-50k is above and beyond 85% (including 1st mortgage).
    you did not specify the mortgage amount so it’s impossible to say if you should or should not.
    1st mortgage $250K
    $50K requested funds
    total: $300
    value of your house should be at least $350K for you to get these funds.

  12. No – the rule changes are for new applicants. If you did what you did, you stay the course. Your ability to pull equity out is limited (as you probably have less than 15% anyways) but you do not need to come up with cash on renewal.

  13. you are laughing!
    best is to renew and ask for a HELOC to the amount you want. renewal $350K, at $550K you can go to 80% so can get a Line of Credit to $110K (with mcap for example). It’s above what you want but in case home reno goes over budget? Of course you don’t need to take out this much, just saying you could.

  14. Thanks again, appreciate it.
    Would you say I’d be better off doing that before the March 18th deadline or waiting til fall-winter to start shopping around?

  15. So who offers an insured HELOC, thought that product died years ago. Where does this Flaherty get his information?????

  16. I believe it would apply to you, Dom. Like it says, “An 85% limit on insured REFINANCES”. If you were getting a refinance you obviously wouldn’t be a new applicant. I would suggest refinancing before these rules kick in-even if it means breaking your current mortgage agreement. Then again, I’m just an average Joe. Best to get a professional opinion rather than rely on anonymous posts online.

  17. >>> restricting the best place for consumers to get good interest rates and professional advise from a Mortgage associate, rather than concuring credit card companies lending policies
    What’s better? Paying off that shopping spree over 12 months at 20%, or rolling it into a HELOC/refinace and paying it off over 25+ years?
    Also, what will help you spend more carefully next time? The painful memories of being gouged at 20% for 12 months? Or a slow bleed over 25+ years?
    The Mortgage associate is a sales person, and not necessarily your friend.

  18. As someone who’s only experience is getting a mortgage this year, I would think that renewal (getting a whole new mortgage) is different than refinancing (expanding your mortgage before the term is up).
    You should be talking to a mortgage broker to get the best rate, and they can confirm this. That would still mean the other restrictions apply to you though which will probably increase payments. You should look closely at what renewal your lender offers you to see if it’s on better terms than competitors (maybe even call them in a month and ask them if they’ll need to add restrictions because of these changes). They can’t do much when these rules come into effect but who knows if they’ll come up with something since they started you with a mortgage that’s not even close to what’s allowed now.

  19. Either Flaherty is clueless, banning something that hardly exists anyway.
    Or, he’s anticipating rising defaults and he’s preventing the banks from offloading* the worst of their loans via insured HELOCs.
    *By this I mean getting at-risk borrowers to convert their CC and regular LOCs to insured HELOCs.

  20. The public is being played by institutions like BMO who are failures at the mortgage lending business.
    The banks want the government to focus on less profitable business lines (Lower interest payments) than the high interest credit card debts. And they won again.
    It is a shame that the government who at the time of guaranteeing (closing) has debt level controls in place (GDS and TDS) but then does not crack down on institutions who allow clients to take out new debt immediately after closing their new loan.
    Why is a regulated secured loan (with qualifying debt levels) not better for a consumer than a 29% interest card to every shop in town.
    Seems like the government is missing the ball to protect consumers and their debt levels. The banks are doing a great job in protecting their profit and making the Canadian consumer think these changes are to protect them.
    Is it not great to be able to refinance a 29% interest debt into a 4% line of credit. For the consumer but not for BMO
    Where was our industry to oppose these changes and really protect consumers.

  21. The days of easy money are over and what the govt. is saying is if you want to rack up debt and use your home as an ATM, fine, go borrow what the bank allows but don’t expect taxpayers to guarantee your loan/refinance.
    It seems the Govt. is slowly bringing the CMHC back to their core mandate. Namely, enhance Canada’s housing finance options and assist Canadians who cannot afford housing in the private market. All while moderating the risks they used to be comfortable assuming but no longer are.

  22. Too little too late, they pushed housing at us with cheap rates, and absurd finacing options that never should have been in the first place, created a debt bomb in Canada, and now are trying to deflate it as fast as they can. Too late… it will deflate all right… in a big pop…

  23. Mark, there’s a huge difference between renewal and refinance. Person clearly said “WHEN I RENEW” not “WHEN I REFINANCE”. I don’t like when people post opinions then hide behind their average joe status. It isn’t rocket science – a renewal will renew based on the terms of the mortgage and never will someone be asked to come up with extra money.

  24. very good question – waiting for other shoe to drop.
    also unaffected will be conventional mortgages (20% down or more) – which will probably be extended to 35 year amortization.

  25. This is the best thing to occur. But unfortunately too many people took out 40 yr 35 yr mortagages with no money down, or even used liar lones (yes Canada has liar lones, where no proof of income is needed) during the last 5 years of this conservative government. Had they prudence they would have left thing alone, and all the house horny young couples today would have to do what their parents had to do, save for a down payment and go max 25 years amort!

  26. Jake, thanks for clearing things up. Yes I indeed meant renew, i.e. no extra money out.
    On the other hand, if I had to move to another dwelling and my mortgage isn’t portable, I guess I have to be re-qualified using the new rules (i.e. no more 100% LTV mortgage)?

  27. T-Ricky
    all the other insurers will follow suit. Even though Genworth it private they still must follow government regulation. It is not CMHC making these changes, it is Dept of Finance

  28. Hi all,
    Just had a post deleted, not sure why.
    I was only asking, aren’t 35-year mortgages still allowed for non-CMHC insured mortgages? That is, if someone puts 20% down then wouldn’t a bank still allow them to take a 35-year am?

  29. Hi Dan,
    Are you referencing your post on this other thread? :)
    To answer your question, as noted, these changes affect high-ratio insured mortgages only. Various uninsured mortgages and insured mortgages <= 80% LTV will still be offered with 35-year amortizations. Cheers...

  30. Does the new mortgage rules affect pre approved mortgages that have not yet been taken out? I applied for a mortgage in the summer and was pre approved. My house is being built and I take possession in april. at that time the mortgage gets finalized. will this affect my mortgage?

  31. Many thanks for the kind words PW.
    Lior is right about NBC. In addition, some of the other Big 5 will extend rate holds past 120 days on new construction purchases.
    For pre-approvals, remember that you will be qualified under the new rules if your application turns live after March 17. “Turn live” means you’ve signed a purchase agreement and turned your pre-approval into a full approval.

  32. Come to Vancouver, check out the market here and tell me that 35 year mortgages are not needed. This stupid. I get not having 40 and 50 years of debt lined up, but 35yrs made things affordable, which 25 and even 30 does not here. A 35 year mortgage, if taken at 25 to 30 years still is paid off by retirement age. I live in the suburbs over an hour from town, and the average 1 bed CONDO is about $300,000. These rules will ultimately add to personal debt as people are forced to keep renting and never build any wealth.

  33. Uh, if renting is cheaper than owning, how does owning help you build wealth???
    Oh wait. I get it. Because Vancouver’s prices are going to continue to increase right?
    Did you even think that maybe if nobody can afford those prices currently, then maybe Vancouver’s prices will DECREASE instead of increasing?

  34. If you buy, especially with a 30 year mortgage with 5 year terms, you will never, never own your home unless you come into money. The banks will own your home, you will rent from the bank. One day, you will default or sell, then give back the banks investment. The bank has you. Unlike renting, where you only give a small deposit, the bank has your initial large deposit, you cant move unless you sell and pay them back, otherwise they keep collecting.

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