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June 13, 2021

Habitual refinancers may be forced to sell their homes

New mortgage rules that lowered the loan-to-value ceiling on refinances to 85 per cent from 90 have begun to cull the number of habitual refinancers. And that means the number of forced listings may soon follow, mortgage brokers predict.

Housde Frustration is growing as cash-strapped borrowers watch their disposable income shrink and are forced to use more of their income to service higher-interest debt, rather than tap lower-cost mortgage money.

“Each transaction has added to their principal with an increased insurance premium, which has whittled away at their equity," broker Bob Smith told Mortgagebrokernews. “It means that with a forced listing, they will have little or no equity available to downsize after legal and selling expenses.”

This is actually the second round of narrower constraints for CMHC-insured mortgages. This time last year Ottawa dropped the maximum LTV from 95 per cent to 90, hoping to discourage Canadians from using their homes as ATMs and help prevent some institutions from facilitating irresponsible lending.

“I don’t think that the new refi rules are good, at least not across the board in that the difference between accessing a LTV of 85 instead of 90 per cent may force someone who is in a tough situation through no fault of their own out of their home,” maintains Prince George, B.C. broker Curtis Cannon.

He, and many like him, would have liked to see the government afford insurers some level of discretion, making exceptions to the rule in deserving cases such as spousal buyout and injury or death.

Have the new rules affected you or someone you know? Are you hoping to tap home equity to get your bottom line in better shape?

By Gordon Powers, MSN Money

* Follow Gordon on Twitter here.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...