Mortgage Amortization Changes!

Canadian’s Have Limited Time to Take Advantage of the 35 Year Mortgage

and Lower Monthly Mortgage Payments

With the rising cost of homes, especially in the Lower Mainland, many homebuyers have chosen a longer amortization period (the number of years it will take you to become mortgage free) in order to keep monthly mortgage payments lower. While this also means they pay more interest over the life of their mortgage and are slower to build equity in their home, longer amortization periods allows home buyers to qualify for higher mortgages and thus get into their dream home sooner.  This is particularly helpful in high-cost housing markets such as Greater Vancouver’s. And even with a longer amortization period, home buyers can always choose to shorten their amortization and save on interest costs by making extra payments or an annual lump-sum principal pre-payment, depending on the terms of their mortgage.

While currently the Canadian industry’s benchmark amortization period is 25 years, the maximum amortization period allowed in Canada is 35 years. That is about to change however. This morning, Canada’s Finance Minister Jim Flaherty, made an announcement of upcoming changes to Canadian mortgages rules, which include a lower maximum amortization period. The three main changes are such:   

1)    Mortgage amortization periods reduced from 35 years to 30 years.

2)    The maximum Canadians can borrow to refinance their mortgage will be 85% of their home value, down from the current maximum of 90%.

3)    The government will be withdrawing insurance backings on lines of credit secured by homes.

These changes are Ottawa’s attempt at targeting rising household debt. Mr. Flaherty has stated he is not concerned about Canadian’s mortgage default rate, which stands at less than 1%. Rather his concern is with those who are borrowing as much as possible and will not be able to pay down their mortgages if borrowing rates rise.

CIBC chief economist Avery Shenfeld has referred to the mortgage changes as part of a larger move by the government to “force Canadians on a debt diet” as household debt levels sit at record levels. However, he also reassures us that “Canadians aren't on the verge of a U.S.-style default crisis – not at these interest rates, and not with debt having been granted to stronger hands than was the case before America's crisis, when subprime mortgages and credit cards were given out like candy.”

When will these changes take place? These changes will not happen immediately because of a requirement to give the industry 60 days notice before making policy changes of this nature. This means we will likely see a surge in home buying over the next couple months, as many Canadians rush to take advantage of the 35 year amortization period.

If you are interested in taking advantage of the current amortization period before these changes take effect, give me a call!!

Ryan Hartt

Keller Williams Elite Realty

778 866 7478