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New Mortgage Rules Kick In

mortgage-regulationsEffective today, mortgage shoppers with less than 20% equity are subject to the new mortgage rules announced recently by the government.

These regulations will cut buying power and refinance ability for a minority of Canadians.

If these changes shut you out of the market, and if renting is not appealing, you don’t have a ton of options.

One alternative is to buy with a strong co-borrower. Another is to get an uninsured mortgage. But the downsides of those are higher rates and limited loan-to-values (Uninsured lenders typically don’t allow LTVs above 85%).

For those of you with mortgages already, these regs will end up pinching a few of you who renew or refinance. Here’s our story from today’s Globe and Mail on that:  New mortgage rules could make switching or refinancing tougher.

And in related news, BMO released poll results this morning suggesting nearly half of Canadians are “unfamiliar” with these new rules. We’d submit that a majority still don’t understand the potential ramifications on the real estate market.

amortizationOnly 45% of those surveyed knew that the maximum amortization on insured mortgages is now 25 years.

Some other findings from the BMO poll:

  • 14% of prospective home buyers say the government’s changes reduce the chances they will buy a new home in the next five years.
  • 41% of those still planning to buy in the next five years say these changes increase the odds that they’ll spend less on a home than they otherwise would have.
  • 45% say this makes it more likely they’ll take out a smaller mortgage.

Borrowers also have OSFI’s new underwriting guidelines to deal with. This additional set of mortgage restrictions will take effect in the coming months (by October 31, 2012 at the latest in most cases).

A Related story:  20 Observations on the New Mortgage Rules

Survey Info: BMO’s survey was conducted online between June 29 and July 4, 2012 with a random sample of 1,000 Canadians 18 years and older. A probability sample of this size would yield results accurate to +/- 3.1 per cent, 19 times out of 20.

Rob McLister, CMT