Finance minister Jim Flaherty announced changes to mortgage lending rules which will take effect March 18, 2011. The three changes are:
1. For CMHC insured mortgages (those with less than 20% down payment), the maximum amortization period decreases from 35 to 30 years.
2. The maximum amount of equity Canadians can borrow from their home will decrease from 90% to 85% of the value of your home.
3. No more government insurance on lines of credits secured by homes.
Below is a scenario showing the potential impact on mortgage payments and affordability.
“The average Canadian resale home sold for $344,551 in December. Assuming a five-year mortgage at 4 per cent interest, and the minimum 5 per cent down payment of $17,227, a 35-year mortgage would have monthly payments of $1,441. Shorten the amortization period to 30 years, and the monthly payment increases to $1,555. (Globe & Mail)”