- 0% down, 40 year amortization CMHC insured mortgages were eliminated in October of 2008
- 5% down, 35 year amortization CMHC insured mortgages were "pegged" to the 5-year fixed rate on offer moving forward from April 2010.
We've been having a discussion as to the effects this will have on people's ability to purchase a home in Victoria. Here it is all laid out for you. I used TD's mortgage calculator to generate these graphics. I used $400K as the mortgage amount and the "special offer" 5-year fixed rate to base the calculations on. The only thing I changed was the amortization period.
The total monthly payment changes $130 with a 5-year reduction in amortization and then $330 with a ten year reduction in amortization.
For a little perspective on the impact this may have, let me consult the most recent CAAMP survey on the state of mortgage financing in Canada:
In other words, 16% of current Canadian homeowners wouldn't be able to afford a $400K mortgage if amortizations dropped from 35 years to 25 years. Victorians don't have above average household incomes compared to their peers across Canada so we can safely say this kind of mortgage qualification change would be felt here in the first time buyer single family home market.
- 16% of Canadians with a mortgage could not manage an extra $300 increase in mortgage payments.
- In addition, 11% of households would run into financial trouble if mortgage rates rose only 1.5%.
I think the likeliest change to come will be a reduction in amortization periods from 35 to 30 years. It's a small pill for Canadians to swallow at this time. I also think there's a fair probability that fixed interest rates climb over the calendar year, perhaps even by 1%. If that occurs, it has the combined effect equal to dropping the amortization to 25 years:
Minor tweaks, yet they may impact about 16% of the market. I know I'm reaching a bit with this analysis. But a bit of "what if" context is necessary to broaden the discussion, no?
UPDATE: While not official, it's about as close as it gets until tomorrow. 30 year amortizations and HELOC clamp-down coming. (H/T Reid). I expect a similar time line to last year's changes: no earlier than mid-April for implementation is my guess. Expect a short-term "busy" period in the market between now and then as people scramble to buy now before the rules change. I'd be expecting banks to almost-immediately implement the new rules, although current pre-approval terms will likely be honoured.