Canadian New Mortgage Amortization And Refinance Rules Effective July 9, 2012

In reference to the increased debt burden of the Canadian families, the Canadian government has been taking various measures to stop the further increase and reduce the recent debt load as it was experienced as high as 152 percent debt-to-income ratio in February 2012. Real estate is one of the major areas where it should require a great concern of a government to take efforts to safeguard home financing and interests of home buyers/owners. The federal government is once again going to tighten mortgage-lending rules to soften down the overheated housing market and increased household debt crisis. Mr. Jim Flaherty, Minister of Finance, announced new mortgage amortization and refinancing rules, according to him these further adjustments to the rules for government-backed insured mortgages will bring down the overextended pressure on households and will help in making the housing market strong in Canada.

Here are the new changes which were announced by the Federal Government for insured mortgage type. These new rules will be effective from July 9th, 2012 are:

1. The maximum amortization is reduced from 30 years to 25 years. This amortization period reduction will help Canadian families in reducing their total interest payments towards their mortgages, which also means faster build up equity on homes and paying off mortgages. It’s the third time the Harper government has reduced the maximum amortization period in the last four years to make it easier for Canadians to buy homes.
2. Availability of government-backed insured mortgages to homes is limited by its price; properties purchased for over $1 million are not eligible for mortgage insurance.
3. Reduce the maximum loan to value ratio on refinances to 80 percent from 85 percent. It means now the maximum equity homeowners can take out of their existing home when refinancing is 80% of the value. It’ll promote saving via homeownership and also encourage homeowners to manage borrowings through their homes.
4. The maximum gross debt service ratio has been fixed at 39 percent and the total debt service ratio at 44 percent. This will result in better protection for Canadian households in case of an increase in interest rates or sudden economic problems.

In the words of Minister Flaherty, “Our Government stands behind the efforts of hard-working Canadian families to save by investing in their homes and their future”. These adjustments will help Canadian people in realizing their goals, making it easy to purchase homes beside will help in reducing the threat of debt to personal disposable income ratios reaching up to the toxic 160 marks, the rate that caused a major downturn in economies of America and Great Britain. For more detailed information on the update, please visit www.fin.gc.ca