New Mortgage Rules
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.