A Note from Amy About the New MORTGAGE RULES

As part of the Government’s continuous efforts to strengthen Canada’s housing finance system, the Honourable Jim Flaherty, Minister of Finance, has announced further adjustments to the rules for government-backed insured mortgages (those mortgages with less than 20% equity).

The Government is announcing four measures for insured mortgages with loan-to-value ratios of more than 80 per cent:

* Reduce the maximum amortization period to 25 years from 30 years. The intent of this is to reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner. The maximum amortization period was set at 35 years in 2008 and further reduced to 30 years in 2011.

* Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes. The intent of this will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes.

* Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent. This will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.

* Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million; this means to purchase a home in this price range, you will need a minimum of 20% down

“Investing in a home is a great way to save,” said Minister Flaherty. “That is the dream that mortgage insurance was intended to support. The measures we are taking today maintain that intended purpose.”

Minister Flaherty said the new rules will take effect on July 9, 2012.