OTTAWA (NEWS1130) - The federal government has introduced new rules to help Canadians steer clear of crippling debt. The three changes were introduced Monday morning.
First off, you will no longer be able to get a 35-year mortgage. The max is now 30 years.
"This measure will significantly reduce the total interest payments of Canadians families made on their mortgages over the amortization period. It will also allow Canadians to build up equity in their homes more quickly," says federal Finance Minister Jim Flaherty.
You can't dip as deep into that equity. The maximum you can borrow to re-finance a mortgage has been dropped to 85 per cent from 90. "This will promote saving through home ownership. It will encourage Canadians to keep equity in their homes and limit the repackaging of consumer debt into mortgages guaranteed by tax fares."
The feds are also withdrawing government insurance backing home equity lines of credit to encourage more responsible lending and borrowing.
The Bank of Canada reports domestic debt has hit record levels in Canada.
Move should reduce over-borrowing
Credit Counseling Society president Scott Hannah believes the move is meant to cut down on people who borrow heavily to invest.
"Looking at the historically borrowing rates today, if they rise, consumers that are heavily mortgaged may find themselves having to sell their homes, which would be tragic," he points out.
Hannah applauds the change but feels Ottawa should have gone further and lowered the re-financing limit to 80 per cent.
How home prices will be affected
Cameron Muir with the BC Real Estate Association says some potential homebuyers will be squeezed out of the market.
"It's going to reduce the purchasing power of homebuyers by about five per cent and by extension that will impact consumer demand, as well as pricing regimes across the province," Muir predicts.
But don't expect prices to drop. "Rather than bringing down home prices, what we're going to see is prices stay a little flatter a little longer than anticipated."
And he says some buyers will have to lower their expectations, and compromise on amenities and location.
Mortgage brokers weigh in
Mortgage broker Michael Campagna is downright gloomy about the news. He predicts a chilling effect on the market, particularly for first time homebuyers as he feels this will cap affordability.
"The amortization period is basically; A) it affects how people qualify for mortgages and B) it inflates the payment, so then basically people who buy won't be able to afford their payment."
Jessica Saris with Verico Manifest Mortgage doesn't quite see it that way. She feels if anything, this will mean buyers will have to adjust their expectations.
"Those people who are going out to buy for sure they're now not going to be able to buy exactly what they want. It's probably going to be a little bit out of their price range. So everyone is going to have to take a step back and go into a lower price point."
The step between 30 and 35 years could mean the difference of hundreds of dollars depending on what you're buying.