BIG CHANGES TO MORTGAGE QUALIFICATIONS
June 21st 2012: In an announcement made earlier today, the Federal Government, via Jim Flaherty has clamped down on mortgage qualification rules. This is the fourth tightening in the last four years and will make it more difficult for the average consumer to buy property.
Here’s a breakdown of today’s changes:
AMORTIZATION: Finance Minister Jim Flaherty said Thursday that he will cut the maximum amortization period for government insured homes to 25 years from the current 30 years
DEBT RATIOS: The government will continue to insist that prospective buyers have the means to afford mortgage payments, property taxes and heating costs on their home. It will do so by setting cost ratios based on household income — a kind of affordability ratio — of 39 per cent for gross debt service and 44 per cent for total debt service (this is down from the current maximum gross debt service ratio of 44% for borrowers with excellent credit)
REFINANCES: Decreasing from 85% of a home’s value to 80%
LARGE MORTGAGES: the government will no longer be in the business of insuring homes that are worth more than $1 million — meaning buyers will need to put up at least a 20 per cent down payment or seek private insurance
Because these changes have just been announced I do not yet have clarification on when these changes will take place or if the two other default insurers (Genworth & Canada Guaranty) will follow suit.
More to come!