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New Canadian Mortgage Rules

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Will the New Mortgage Rules impact you?

The Federal Finance Minister announced that Canadian mortgage rules are changing in July.  Many homeowners aren’t familiar with these alterations or how they’ll affect their mortgages going forward.

Under the new lending rules, banks and mortgage companies can now only issue home equity loans up to a maximum of 80% of a property’s value, down from 85%.  At the same time the maximum amortization period has been reduced from 30 years to 25 years.  Considering that your mortgage is one of the biggest financial commitments you will ever make, investing the time to get advice about how your mortgage fits with your overall financial goals can yield significant financial benefits down the road.  By following some easy strategies and capitalizing on today’s low interest rates, people can significantly speed up their mortgage repayment.

It’s important that all Canadians are aware of rules or regulation changes that have a direct impact on their financial plans, goals and economic stability.  The financial implications of opting for a 25 year or shorter mortgage can be significant in meeting long-term goals.  In fact, the foundation of long term planning is for people to get control of cash flow, set up budgets, and realize that the faster they eliminate all non-deductible debt, the sooner they can get control of their financial destiny and goals.

Several economists have commented that the new measures will help ease the overall household debt burden here in Canada and should have a significant impact on moderating the growing Canadian real estate market bubble.

One economist commented that average Canadian home prices need to fall about 3% to neutralize the impact of the rule changes.  By helping to cool the market now, these changes “should increase the odds of a soft, rather than a hard landing.”

A recent poll revealed how the new guidelines will affect Canadians buying intentions and behaviors.

  • 14% of prospective homebuyers say the latest changes make it less likely they will buy a new home in the next five years
  • 41% of those still planning to buy say these changes make it more likely they will spend less on a home than they would have otherwise
  • 45% say it makes it more likely they will take out a smaller mortgage

New home buyers or those looking to upgrade need to do their homework, especially if looking at mortgage terms longer than 25 years.  Only time will tell if these rules changes will have the desired effect by causing Canadians to borrow less or buy less expensive homes.  As well, there are other options available today.  Sit down with a trusted financial advisor and see if there is something better out there to accelerate your debt pay down, so you can begin earning interest sooner rather than paying it.

 

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