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Edmonton Real Estate News: Mortgage Update


Blog by Sara Kalke | February 6th, 2011


MORTGAGE RULE CHANGES - EXPLAINED:

Here is an excerpt from regarding the new mortgage changes that came out recently. Their example of how the mortgage rules affect the top dollar buyers can spend is particularly interesting.

Provided by Lauren Hills at DIS Mortgage.




New mortgage rules… again

Last week we discussed the most recent changes the federal government is implementing March 18, 2011. The two changes that will effect most Canadians will be: maximum amortization reduced to 30 years and maximum refinance of mortgages cannot exceed 85% of the total value of the home.

Maximum amortization for high ratio mortgages reduced to 30 yrs

The previous 35 and 40 year amortization mortgages have been very attractive for home buyers as a way to get into the housing market and/or reduce their monthly payment. Mortgage planners and brokers would often recommend starting at 35 years when more payment flexibility is required (to assist a young family or if income is uneven) but then during the mortgage term, increasing payments and exercising the prepayment privilege to escalate mortgage pay down and lessen overall interest. So how does this change impact the buying power of today's home buyer?

Example: A young couple with a combined income of $75,000 and a car payment of $350 per month are planning to use a 5% down payment. At today's five year interest rate of 3.89% and assuming property taxes of $2,400 per year: they would qualify for a mortgage of $396,000 under the previous 35 year max amortization. Now, under the new 30 year max – that number is $366,500.

Bottom line for this couple: previously, they would have qualified to purchase a home priced about $417,000. However, after March 18, they can only look at homes priced about $386,000.

It is important to note all the changes only apply to high ratio mortgages (those purchases using less than 20% down payment).

Stay tuned for clarification on the rest of the changes and the effects on our real estate market and our bottom line! As always, you can contact us anytime for a "one on one" to further discuss these changes and how a licensed Mortgage Planner can assist you with navigating the world of mortgages and continuing changes to our world.

Dave Trithart, AMP

Lauren Hills, AMP