July 2012 Mortgage Rule Changes in BC
The new mortgage rules came into effect in early July. Basically the government is taking extra precautions on mortgage financing to make sure Canadian borrowers are not over extending.
Now that the dust has settled, let’s take a look at some of the changes. They are fairly straight forward, but here are the main differences.
New Mortgage Rules 2012
1. Borrowers will only be able to refinance up to 80% instead of 85%. This is to prevent Canadians from taking out too much equity from their property in case of a sudden housing price drop. This has a significant impact on borrowers who tend to leverage the equity in their home for other investments.
2. If you are purchasing a property over 1 million dollars, you are now required to put a minimum of 20% down. In my experience, this will not have a major impact because the majority of borrowers purchasing in this price range tend to have bigger down payments (and salary has to be very high in order to qualify for 1M+ mortgages so usually there is a bigger down payment anyway).
The following rules will only impact you if you have less than 20% down:
3. Maximum amortization reduced from 30 years to 25 years. In my opinion, this will have the biggest impact of the new mortgage rules. It increases the monthly payment and will significantly reduce the amount you can borrow. 30 and 35 year amortizations are still available for borrowers with 20% down or more.
4. Stricter borrowing guidelines. Without going into too much detail, the government will not be allowing any more exceptions for borrowers who exceed the allowed lending ratios.
These new rules have made it more of an incentive than ever to push for a 20% down payment. You have much more flexibility.
I hope that gives you a better idea of the new mortgage rules. If you have any questions, feel free to call or email me.