Chief economist from BCREA just provided an update on the changes you'll be seeing on mortgages and how it'll effect BC. Check it out below!
Government Changes to Mortgage Lending - June 21, 2012
For the fourth time in the past four years, the Federal
Government has announced further action to restrict mortgage credit. The new
- The maximum
amortization on a prime mortgage will be reduced from 30 to 25 years.
- Mortgage insurance
will not be provided for properties valued over $1 million.
- Refinancing has been
lowered from a maximum of 85% loan-to-value to a maximum of 80%
- The maximum gross debt
service (GDS) and total debt service (TDS) will be limited to a maximum
of 39% and 44% respectively. Currently, GDS does not apply to qualified
borrowers with credit scores over 680.
measures will take effect July 9, 2012.
Implications for the BC home market:
- The new 25 year
amortization will have a small but material impact on affordability for
homebuyers. For a $300,000 mortgage, the shorter amortization period
will add over $150 per month to mortgage carrying costs for homebuyers
that would have instead opted for a 30 year amortization. This is equivalent
to an approximately 1 per cent increase in mortgage rates.
- Longer amortization
period may also impact the rental market where investors have utilized
longer amortization period to lower carrying costs.
- Prohibiting mortgage
insurance for properties over $1 million will impact Vancouver markets
to a much greater extent than other Canadian jurisdictions. While this
policy may have limited impact on credit access for high-ratio
borrowers, it will tighten credit for the $1 million and over segment of
the market through its impact on lenders risk management practices. This
is particularly true in light of the CMHC already rationing portfolio
insurance for low-ratio mortgages.
more information, please contact:
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