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    August 2012
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    Government of Canada Mortgage changes

    Guy Ward

    So it may seem like old news now, but just six weeks ago the Government announced new mortgage changes… They gave little notice, well it seemed short notice compared to when they changed the amortization from 35 years to 30 years a couple of years back…

    In brief these were some of the changes introduced on July 9th, 2012…

    1) Maximum amortization for insured mortgages is now 25 years…(Used to be 30 years)
    2) Maximum GDS (Gross Debt Servicing) now 39% & TDS (Total Debt Servicing) 44%
    3) Maximum allowed purchase price for insured mortgage is now $999,999
    4) Refinance to a maximum of 80% LTV (Loan to value) of your home… (Used to be 85%)

    This week, I wanted to talk about the biggest change, which of course is the amortization period….
    The government’s explanation is “Limiting the maximum amortization period will 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.” I am in agreement with this and encourage my clients to pay down their mortgage as quickly and efficiently as they can… However, I (and many others) do not believe this was the sole reason for the change… There have been a lot of concerns with the Toronto & Vancouver condo markets being too hot and out of control… There are, of course, arguments to support and disagree with this, however it cannot be excluded and it seems that due to the mass media reports on this, many Canadians (mostly first time buyers) feel as though the government has punished them, even though they live outside and have nothing to do with the Greater Toronto & Vancouver areas… Look at it like this, Joe Smith who lives in Calgary, has been saving his 5% down payment for the last few years and had a pre-approval for a 30 year amortization to qualify for a modestly priced condo… His hopes have been dashed, as the 25-year does not qualify him for a condo in the area of the city he works… While people should be encouraged to take the shorter amortization, I do believe that when someone is trying one’s best to get on that some times elusive property ladder, it can be justified…

    The other reason is that the government needs to be seen to be doing something about the debt levels we have in this country… More and more people are racking up debt on their homes and in unsecured loans like credit cards, auto loans etc… I would like to point out that a large proportion of homeowners when in a difficult financial situation, are in that situation due to all of their unsecured debt and not their ability to be able to afford their mortgage payment…

    The government also has a hand in the shrinking of people’s home equity, as back in 2006 they were allowing a 40-year amortization period with zero down… I am not sure what they were thinking at the time, but they have to take responsibility for contributing to this as well…

    While we all have our opinions and can discuss this until we are blue in the face, for the most part, Canadians are not even aware of these changes and how it affects them… That, in it’s self, is a concern and a whole other discussion!

    Guy the Mortgage Guy!

    Guy Ward is a Mortgage Associate in Calgary, Alberta with TMG (The Mortgage Group)…

    WWW.GUYTHEMORTGAGEGUY.COM

    The MONEY® Network