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PostPosted: Tue Oct 04, 2016 4:58 pm 
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On Monday, October 3rd, new changes to mortgage regulations were announced by finance minister Bill Morneau. The two biggest changes to the regulations will be to the amortization and to the qualifying rate.

The first of the major changes will be the maximum amortization dropping from 30 years down to 25 years on conventional mortgages. That is... mortgages with 20% or more down payment. On high ratio mortgages (down payment less than 20%), the maximum amortization was already 25 years.

The second of these changes is to the qualifying rate, which requires a bit more explanation. Under current regulation, variable rate mortgages and mortgages with fixed terms shorter than 5 years have to qualify based on whats known as the benchmark rate, which is set by the Bank of Canada. It's basically the average of the 5 year fixed posted rates from the 6 major banks. Currently, this rate is 4.64%.

5 year fixed on the other hand qualify based on your contract rate, which is the rate you are paying. Under current legislation, you would qualify for a much lower amount on variable rates and shorter term mortgages than you would on a 5 year fixed.

The change that was made is that ALL mortgages will now have to qualify based on the benchmark rate, regardless of 5 year fixed or variable. This is going to make qualification much tougher for many homebuyers, particularly in this market.

Just to give you an idea of how big of an impact this will have, on an $80,000 incom, you can qualify for a mortgage of around $525,000 with a 30 year amortization (with 20% down payment) under the existing guidelines. Under the new regulations, this number drops drastically... all the way down to $370,000.

These new regulations take effect on October 17th. Not much notice at all. Anyone with an existing pre-approval will have to get this redone under the new guidelines.

For applications submitted between October 3rd and October 16th, the current regulations can be honoured, providing that the closing of the mortgage occurs prior to March 1st, 2017.

For applications that have been submitted prior to October 2nd, 2016, these new rules will not apply to you and current legislation will be honored.

For anyone who has purchased a home and has not yet had their application submitted to a lender, I highly suggest doing so right away.

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Paul Meredith
Mortgage Broker
CityCan Financial (est 1976)
416-409-8009
http://www.easy123mortgage.ca
paulm@citycan.com
Lic#10532

Follow me on Twitter! http://www.twitter.com/paulmeredith


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PostPosted: Tue Oct 04, 2016 5:21 pm 
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Quick question - is the new max amortization now 25 years for all mortgages? Thought it was just insured?

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Hunter Obee
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Royal LePage Meadowtowne Realty
Diamond Award Winner - Top 3% in Canada
http://www.TheHomeHunter.ca
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PostPosted: Tue Oct 04, 2016 6:08 pm 
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Hi Hunter. It's just insured mortgages. However, ALL mortgages done by non-bank lenders are insured, regardless of how much you put down. It's just all done on the back end with no premium paid by the client. So technically... the big banks do not have to follow this new rule... however, it's almost certain that they will. Just as they did when the maximum amortization dropped from 40 years to 35 years.... and then 35 to 30. CMHC will actually still allow amortization up to 40 years on conventional mortgages, however there isn't a single lender that supports that.

These changes are still very fresh, and even the industry is still trying to make sense of everything. At this time, it's really hard to say what is going to happen and who is going to adapt what changes. We'll should have a better idea of how this will affect us within the next week or so.

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Paul Meredith
Mortgage Broker
CityCan Financial (est 1976)
416-409-8009
http://www.easy123mortgage.ca
paulm@citycan.com
Lic#10532

Follow me on Twitter! http://www.twitter.com/paulmeredith


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PostPosted: Tue Oct 04, 2016 7:05 pm 
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Thanks Paul - honestly wasn't sure how it was being implemented.

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Hunter Obee
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Royal LePage Meadowtowne Realty
Diamond Award Winner - Top 3% in Canada
http://www.TheHomeHunter.ca
905-878-8101


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PostPosted: Wed Oct 05, 2016 8:04 am 
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Are these new rules for first time home buyers?

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PostPosted: Wed Oct 05, 2016 8:28 am 
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k_moreira2017 wrote:
Are these new rules for first time home buyers?

The rules are for everyone but aimed especially at first time home buyers and foreign investors!


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PostPosted: Wed Oct 05, 2016 11:21 am 
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To be honest - I say good.

If you have a household income of $80K, you shouldn't be borrowing $500K - The market allowed this to happen, so the fed steps in to stop it.

I understand this will likely have a cooling effect on our housing and will stop some people from being able to get a home - but for the latter - you were already stretching yourself too thin. $80K means about $4500 a month in after tax income, give or take. $2100 in mortgage (based on 2.6%, bi weekly, 25 year amortization), heating and cooling a home easily will add $250 a month on average, property tax will add $350+ per month, home insurance another $50 a month. You're left with less than $2000 to pay for transport, food and other living expenses. We haven't factored in upkeep of the home, etc.

It's a recipe for disaster if the rates move up.


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