Here's the coles notes:
- Mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years.
- Maximum amount Canadians can borrow against the value of their homes, lowered to 85% from 90% on a refinancing.
- Federal government backing for home equity lines of credit, or so-called HELOCs, is removed.
- Adjustments on amortization and refinancing limits coming into force on March 18.
- Government backing on HELOCs will be removed as of April18.
Interesting that the Department of Finance is spinning this as a "savings" move for consumers.
From the DoF directly:
The new measures:
- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
These changes are actually more drastic than I'd expected. Especially on the HELOC side of things. IMO removing insurance on HELOCs is a direct hit on homeowner as second property speculator. Others will call that an abhorrent change that prevents people who can't manage their consumer credit from rolling their high interest debt into their homes. Because that's what a home is there for and all that...
I still expect a short term but subdued buying rush in the market. That may include a listings frenzy too as sellers try to sell before the rule changes in March. By mid-February I suspect there won't be a big bank in Canada still doing CMHC insured 35 year amortizations.
UPDATE: The effects of the mortgage rule changes will be felt in the sales stats. MLS numbers courtesy of the VREB via Marko Juras.
Month to date January 2011
Net Unconditional Sales: 144
New Listings: 560
Active Listings: 3,007
Sales to new listings ratio: 26%
Sales to active listings ratio: 5%
Net Unconditional Sales: 418
New Listings: 1,211
Active Listings: 2,793