New mortgage rules 2012 – Canada

Posted by admin on July 16, 2012

New mortgage rules went into effect Monday, July 9th, 2012 in Canada, but a recent survey suggests many people are unfamiliar with the changes.

Starting Monday, borrowers refinancing their mortgages are limited to 80 per cent to the value of the home, down from 85 per cent.

And the maximum amortization period dropped to 25 years from 30 years for government insured mortgages – giving borrowers less time to repay the debt in full.

Yet a poll conducted by Pollara for Bank of Montreal found only about half of those surveyed were familiar with the changes brought in by the federal government. And only 45 per cent of those surveyed June 29 to July 4 were aware that the maximum amortization period has been shortened by five years.

What’s more, in Quebec, there was no recent reported spike in applicants looking to buy or refinance homes under the old rules, real estate and mortgage agencies said.

“There wasn’t a huge rise,” said Denis Doucet, a regional director at Quebec’s Multi Prêts mortgage agency, which operates as Mortgage Alliance Company of Canada Inc. in the rest of the country, “Maybe we had a bit more demand, but nothing significant.”

Unlike previous changes in the mortgage rules for buyers of CMHC-insured homes, the duration between the time when Finance Minister Jim Flaherty announced the changes on June 21 – and their implementation this week – was simply too short, Doucet and others said.

“They did it so suddenly this time,” said Dominic St-Pierre, director of real estate services at Royal LePage, Quebec. “The last time they did it (change the amortization period from 35 to 30 years in January 2011), it was announced months in advance.”

But Kelvin Mangaroo, president of RateSupermarket.ca, a national rate comparison website for personal finance products including mortgages, did notice a rise in activity “as the July 9 date approached.”

The federal government also tightened the standards lenders must apply before granting a mortgage.

Other changes by the Office of the Superintendent of Financial Institutions reduced the limit for home equity lines of credit to 65 per cent of a property’s value, down from 80 per cent.

Despite analysts initial welcoming of the changes, a recent drop in sales in Canada’s hot Vancouver and Toronto markets has sparked questions over whether this latest round went too far.

“I think the Canadian government reacted too harshly,” St-Pierre said. “Inventory is creeping up. Montreal is on the verge of becoming a buyer’s market. This is just going to compound the slowdown we see already”.