Today, Finance minister Jim Flaherty announced the following:
- Effective March 18th, mortgage amortizations will be reduced from 35 years to 30 years
- Effective March 18th, homeowners can refinance their homes up to 85% of its market value from current 90%
- Effective April 18th, government will not longer insured home equity lines of credit
Here are the good news:
- Minimum downpayment requirement of 5% was not changed for buying a home
- Self employed homeowners refinance was not lowered from 85% (per last year changes)
- 100% of condo fees will not be used in mortgage qualification (currently 50% of condo fees are used)
- For real estate investors, there will be more rental demand due to the difficulty in qualifying for a mortgage
- Canadians will own their homes faster and pay less interest
The bad news:
- It will be difficult to qualify for a mortgage if you are a first time homebuyer due to the reduction of amortization to 30 years
- Homeowners with debt outside their mortgage who want to improve their cash flow situation will be limited to 85% of their home value
The result of the new rules is the creation of an active real estate market for the next 2 months. These changes will have minimal impact on real estate investors as 20% downpayment is the requirement and self employed homeowners who require 10% downpayment to purchase a home.
I have two concerns as we move forward with these changes:
- What will happen to homeowners who bought their homes at zero down with 40 year amortization at renewal? Will they be forced to renew with current lenders at higher rates since they can't move their mortgage to another lender?
- How will homeowners qualify for a mortgage when posted rates climb up to 7-8% as the global economy improves in the next few years?
Finally, we should be grateful that we live in Canada where the pendulum never swings too far one way or the other and we have escaped the great recession fairly well.