The clock is ticking…one month to go. On March 18, the government-imposed changes to mortgage rules will go into effect and will ultimately impact nearly all homeowners with mortgages.
Specifically, there are three significant changes that will impact all needing new or refinanced mortgages.
Instead of allowing mortgages of 35 years, the maximum term will now be 30 years for any government-backed insured mortgages when the down payment is less than 20 percent.
The maximum that can be borrowed when refinancing a mortgage will be 85 per cent (previously 90 per cent).
The government will no longer provide insurance backing for home equity lines of credit.
The minimum down-payment for a mortgage remains at 5 per cent, despite the government’s discussion of raising it; and the requirement that just 50 per cent of monthly condo fees be used in debt-radio calculations will continue.
It is also important to note that individuals, who purchased a home and arranged financing prior to March 18 but settling after the 18th, may be excluded from the new rules.
While the down-side of these new rules is that monthly payments will be higher than with a longer amortization period – forcing some home purchasers to buy less expensive homes so they can afford the payment, the up-side is the huge savings in interest over the life of the mortgage.
For example, a $250,000 mortgage at 4 per cent for 35 years translates to a monthly payment of $1,102. All other fees remaining the same, that same $250,000 mortgage over 30 years translates to a monthly payment of $1,188.80.
Over the course of the loan, this homeowner will save $34,878.07!
Now that is nothing to groan about, when a homeowner looks at the big picture.
When you think about the ability to use that much hard-earned money for something else that is important or fun, maybe the government’s changes to help Canadians
be more financially stable with less burden of debt, really will be positive in the long-run.
But, for those who want to beat the March 18 deadline and re-finance a mortgage to get better rates, some extra cash for other purposes (investments, to start a business or to complete home renovations, for example), or to consolidate some higher-interest debts, you must act quickly.
With so many mortgage products available for brokers to hand-pick the right mortgage for each client’s unique situation, you will want share your current and future income/employment situation.
Paul Healey and Karen Ewing are partners at Invis Mortgage, Comox Valley, an award-winning mortgage brokerage. Contact them at www.YourApprovedMortgage.ca.