Kamloops, B.c Canada (PressExposure) January 18, 2011 -- Three new mortgage rules, slated to be in effect by March 18, 2011, are about to make buying a home more difficult for Canadians. New federal rules will reduce the maximum amortization period to 30 years from 35 years for mortgages with a loan-to-value ratio greater than 80 percent.
Secondly, the maximum amount Canadians can borrow to refinance their home will be reduced to 85 percent from 90 per cent of the homes value.
Thirdly, Ottawa will no longer be offering government insurance on lines of credit secured by homes.
Although longer amortization periods lower monthly payments, they greatly increase the amount of interest paid over the life of the loan and result in a slower equity build up. First time home buyers, who often use longer amortizations to manage their debt service, will not qualify for the same properties under these new rules. As a result, it is expected to see buyers lowering their expectations, or seeking co-signers for their loan.
Homeowners might be challenged when trying to purchase an investment property using their home equity. Reduced refinancing amounts will dampen the ability of homeowners to utilize as much home equity as in the past, requiring more prioritization for the funds.
The measures are not meant to dissuade Canadains from purchasing a home, but are designed to encourage saving through home ownership and decrease financial risks.
Mr. Flaherty, Canada's finance minister, says his concern is not mortgage defaults, but rather people borrowing as much as they can at low interest rates.
"We're seeing people borrow to the max, and borrowing to the max at low interest rate," he said, "Most Canadians are not doing that".
Whatever the intentions, these measures are expected to have a "moderating" effect on Canada's housing market.
The impact on the Kamloops real estate market is yet to be determined. Only time will tell.