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Archive for January, 2011

Mortgage amortization down from 35 yrs to 30 yrs.

Friday, January 28th, 2011

Jim Flaherty has again tightened mortgage rules, by shortening the the maximum amortization period from 35 to 30 yrs.

The effect that this will have on the housing market is unsure, however it is my opinion that it may have little long term effects, short term effects maybe more dramatic.

In the short term (next 6 mos) I see a spike in prices as buyers jump in to take advantage of the longer term. This will be most dramatic for first time buyers as theses are the most affected by this change.

A $300,000 dollar mortgage  with a 4.0% interest rate amortized over 35 years would require a $1,322 payment.

A $300,000 dollar mortgage  with a 4.0% interest rate amortized over 30 years would require a $1,426 payment.

The following article is taken from and written by Theophilos Argitis.

Canada Tightens Mortgage Lending Rules To Curb Household Debt.

Canadian Finance Minister Jim Flaherty announced steps to tighten record household borrowing amid concern rising debt levels could threaten the economic recovery.

Canada will shorten the maximum amortization period for government-insured mortgages to 30 years from 35 years, and lower the maximum amount homeowners can borrow against the value of their homes to 85 percent from 90 percent. Flaherty said the changes, which will take effect March 18, are primarily preventative and will have a “modest” impact on the housing market.

“This government understands the importance of not taking on more than you can afford and the dangers of ongoing debt,” Flaherty, 61, told reporters today in Ottawa. “A stable and sustainable housing market keeps our economy strong.”

The government will also withdraw its insurance on home- equity lines of credit starting on April 18, Flaherty said in a statement.

Policy makers, including Flaherty and Bank of Canada Governor Mark Carney, have been urging households in recent months to be wary of taking on too much debt after data showed the indebtedness of Canadians surpassed U.S. levels for the first time in 12 years.

“The actions announced today by Minister Flaherty are prudent, measured, responsible and timely,” Frank Techar, president of personal and commercial banking at Bank of Montreal, said today in a statement.

Rate Increases

Household debt was a record 148 percent of disposable income in the third quarter last year according to Statistics Canada data, exceeding the U.S. level of 147 percent.

Regulatory steps to stem borrowing may allow Carney to slow the pace of interest-rate increases this year. Carney has kept his key interest rate at 1 percent since September, and said in a Dec. 13 speech that further moves would be “carefully considered” as he gauges the strength of the global recovery. The Bank of Canada’s next rate announcement is tomorrow at 9 a.m. New York time.

“There had been some talk of the Bank of Canada raising rates earlier in order to slow the growth rate of household debt, but we think that today’s announcement will help to quash that idea,” David Tulk, senior rates and foreign exchange strategist at TD Securities in Toronto, said in a note to investors.

Extra Volatility

The changes may prompt some households to bring forward purchase of homes before the measures come into effect, adding an “an extra amount” of volatility to a slowing housing market, according to Tulk, while the move to withdraw backing for home equity credit lines could contribute to slowing growth in consumer credit.

Canada has relied on regulatory steps to rein in mortgage borrowing, primarily through changes for government-backed mortgages. In February, Flaherty tightened rules that forced buyers to meet standards for five-year, fixed-rate mortgages even if they opt for variable rates.

It’s the second time Flaherty has shortened amortization rules, reducing the limit in 2008 to 35 years, from 40 years. Canadians are required to insure their mortgages if they make a down payment of less than 20 percent of the value of the home.

I hope that you found the above article interesting and informative.

If you are a first time buyer, you may want to take note of these changes. Talk to your mortgage broker, or give me a call and I will be happy to  give you the name of a mortgage professional that will be happy to explain how these changes may affect you.

If you are looking to sell your home in the next eight months, now would be a good time to look at, whether and how, this could affect you. It would be great to talk to you and give you my opinion on your specific situation.

Dave Dry

15% minimum down payment?

Friday, January 28th, 2011

I have heard a number clients, and news agencies saying that 15% is now the minimum down payment required to purchase a home, this is not the case.

New mortgages continue to require a 5% down payment to be insured by CMHC. 15% is the required equity you must have in your home to re finance. Re finance means taking the equity you have in your home and converting it to cash.


Jane and Jim want to buy a $300,000 home. To buy this home they would require a $15,000 down payment.

Debbie and Doug would like to refinance their home in order to take a few trips and spend some money on the grand  kids. The maximum they can refinance their $300,000 home for, is $255,000 being 85% of market value. Leaving 15% equity.

There is also some misinformation floating around in regards to lines of credit secured against Real Estate.

Before making any decisions in regards to these products, please contact your, bank or mortgage broker. If you do not have a reliable source for information I would be happy to refer you to one.

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