Blog by Mary Cleaver

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New Mortgage Rules

As you may know, the federal government introduced new rules for mortgage finance meant to help reign in the growing personal debt taken on by Canadian households. We could debate the reasoning, or the effectiveness of these changes but the bottom line is that on July 9th, it became a little more difficult to afford to purchase a home for many Canadians.

First, a quick overview of the changes. These rules apply only to insured mortgages on residential property (those mortgages with less than a 20% down payment).

The government has:

  • reduced the maximum amortization period to 25 years from 30 years.
  • lowered the maximum amount borrowers can refinance to 80% loan-to-value from 85%
  • limited the gross debt service ratio - the amount of household income spent on the mortgage, property taxes and heating to a maximum of 39% of income
  • limited the total debt service ratio - the amount of household income spent on all debts including the mortgage to a maximum 44% of income; and
  • limited government insured mortgages to homes priced at less than $1 million so that buyers paying $1 million or more must have a minimum 20% downpayment

What does this mean for buyers? A number of things but the big picture is that you can probably borrow less today than you could before July 9 2012. In a market like ours, this is not great news. Buyers who've been saving for a downpayment, even shopping for properties find that an adjustment in these numbers is delaying their plans for home ownership.