What impact will the new mortgage rules have on you?
The new rules recently announced by the federal government affect mortgage amortization periods, refinancing, and home equity lines of credit. The new rules take effect on March 18, 2011.
Here’s a summary of the changes and how they might affect you.
Reduced mortgage amortization periods
The maximum amortization period for a mortgage will now be 30 years, down from 35, for new government-backed insured mortgages with loan-to-value (LTV) ratios of more than 80%. Note that the rule only applies going forward, which means that if you still have 33 years left on your mortgage, for example, you can still renew at 33 years.
However, if you’re thinking of selling your house, you may want to get your house on the market sooner rather than later! There may be a number of home buyers looking to purchase a house prior to the March deadline. This may increase home purchases in the lead up to March 18, potentially driving up home prices.
If you are one of those who were hoping to get a 35-year mortgage, you might have to revise your budget and prepare for higher monthly payments, or opt for a more affordable home. The change in amortization period won’t affect your plan if you buy your home before March 18.
Refinancing rules are changing
The maximum amount that you will be able to borrow when you consider refinancing your mortgage will be lowered to 85% of your home’s value, down from 90%.
The idea is to prevent people from taking on excessive debt, or using the money for purposes other than reinvesting in their homes.
HELOCs no longer insured
Last but not least: The government will no longer insure home equity lines of credit (HELOCs). If you already have a home equity line of credit, the new rules will not affect you. If you’re looking for a new HELOC, there is a possibility you could be charged a slightly higher rate under the new rules.
If you have any questions about how the new rules may affect you and your financial situation, contact First National Financial or speak with your mortgage broker.
This article is from FIRST NATIONAL FINANCIAL's mortgage update newsletter.