4th Time is a Charm?

The 5 W’s of the recent federal government announcement by Finance Minister Jim Flaherty. A quick source guide to what this means and how it will affect you as a REALTOR and as a homebuyer.

Who>> Finance Minister Jim Flaherty announced that the new rules are expected to affect less than 5% of new homebuyers.

What>> The Federal Government is reducing the maximum amortization period of a government insured mortgage from 30 years to 25 years for the 3rd time in 4year. This will increase payments but reduce total interest. For example, on a $350,000 mortgage loan at four per cent, the monthly payment will increase $177 but reduce the total interest costs by nearly $47,000. Buyers can continue to get a 30 year government insured mortgage, but only with a minimum 20% down payment. Home owners will be allowed to only borrow 80% against the value of their home, down from 85% in an effort to keep more equity in owner’s homes. To qualify for a government insured mortgage expenses can be no more than 39% of total gross income. Government backed insured mortgages will be limited to $1 million with any mortgage priced over $1 million requiring a down payment of 20%. The consensus is that this will not derail the market but could soften it slightly and this is a good targeted approach to Canada’s economic uncertainties.

What it means for Home Buyers:
– Less Interest paid over the term of the Mortgage
– Higher monthly payments
– Can tear up your mortgage papers sooner
– In Calgary, it could price some potential Home Buyers out of the housing market.

Where>> These rules came about over particular concern and focus on Toronto, but also Montreal, Quebec City and Vancouver.

When>> Rules take effect July 9th, 2012

Why>> The new rules have been introduced because of concerns about an overheated housing market and rising household debt, with a particular focus on condos. With personal debt being the most influential domestic debt on Canada’s economy several big banks are on board with the new rules and were in fact a strong voice in getting the new rules written. The Toronto market continues building while prices are rising lessening affordability.

“We watch carefully, we monitor the market carefully. I remain concerned about parts of the Canadian residential real estate market, particularly in Toronto, but not only in Toronto, so that is why we are intervening once again,” Flaherty told reporters in Ottawa.

“It’s our job to try to be ahead of things and act in a measured way, listening to the market. And I have been listening to the market, and quite frankly, I don’t like what I hear, particularly in the condo market.”

CREA Statement: The impact of measures like those announced today must be closely monitored to ensure they have the anticipated impact and don’t create a spillover effect and slow the economy.

Chart from: http://business.financialpost.com/2012/06/21/you-still-dont-need-a-lot-of-cash-to-buy-a-house/

Chart from: http://www.cbc.ca/news/interactives/mortgage-rules-changes2012/

Financial post

Financial Post Analysts
Globe and Mail
Globe and Mail – Carney
Financial Post – What it Means for Homeuyers
CIBC
TD Bank
Canadian Mortgage Trends
CBC
CREA

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