New Mortgage Financing Rules
On Wednesday, Finance Minister Jim Flaherty announced tighter mortgage lending conditions that will apply to CMHC insured mortgages effective March 18, 2011. CMHC insurance is required if the mortgage required to purchase a home is greater than 80% of the value of the home. In other words, if you have less than a 20% down payment, you are required to purchase CMHC insurance and the new rules will apply to you.
The first new condition is the reduction of the maximum amortization period to 30 years from 35 years. What this means for buyers is that if your mortgage pre-approval was based on a 35 year amortization period, you will no longer qualify for mortgage financing after March 18th. Most lenders will honour pre-approvals already issued provided that a firm Agreement of Purchase and Sale is entered into before March 18th, but buyers should double check with their mortgage broker or financial institution.
The second new condition is that homeowners who want to re-finance their home to use the equity may only mortgage 85% of the value of the home, down from the previous 90%.
The tightened lending policies may cause a slight increase in home purchases up to March 18th as those buyers with borderline qualifying income seek to avoid the new restrictions, however, the impact will not be even close to what we experienced last year when buyers were rushing to beat the HST that came into effect July 1st, 2010.
It should be noted that some lenders may put these changes into effect before the March 18th deadline, so if you are looking to buy a home, contact your mortgage professional sooner rather than later!