Are tougher mortgage rules keeping you out of the market?
Canadians end up paying off their mortgages in about two-thirds of the time originally intended, according to research from The Canadian Association of Accredited Mortgage Professionals.
Looking at mortgages paid off over the past three years, the original amortization length was roughly 18 years but, on average, homebuyers ended up with an actual amortization length of just less than 12 years. In other words, we can handle debt pretty well, according to CAAMP's view.
Nonetheless, Finance Minister Jim Flaherty tightened mortgage rules four times in the last five years amid concern that oversupply in some markets could lead to a sharp drop in prices.
The group feels the government's recent changes — raising the minimum down payment for mortgages insured through the government-backed CMHC and lowering the amount of time borrowers have to pay them back to 25 years (it was as high as 40 years only five years ago) — is overdone and is preventing many potential homebuyers from entering the market.
Because most first-timers need mortgage insurance (and therefore have to play by insurer’s rules), that put many home ownership dreams on the back burner.
As a result, CAAMP is calling for an adjustment that would allow first-time buyers to amortize over 30 years, providing they could actually qualify for 25 years.
Of course, steadily rising home prices and record low rates are the real culprits here. And some would argue that if you can't afford to pay for your home within 25 years then you have no business buying it in the first place.
But there's no question that longer amortization periods improve cash flow and make purchasing a house easier, particularly for young families starting out.
Are tighter mortgasge rules preventing you from entering the housing market? Or are you holding off in anticipation of lower prices?
By Gordon Powers, MSN Money
Posted by: Leah | May 30, 2021 1:27:57 AM
I welcome 'some' of the tightening up (40 & 35 year amortizations did nothing but COST consumers MORE money in the long run). But there are other changes that are outrageous! I.E., a CMHC insured mtg can no longer port and blend to another home without putting at least 20% down on the new homes purchase price! Therefore you have to start all over again with all new premiums to CMHC. Another: only 80% LTV on a refinance -- I don't agree. It was CMHC & Genworth who began allowing 95% refinance in the first place (overkill) then they take it away! Why not at least 85% or 90%??? It was CMHC & Genworth who started this whole "database for valuation" system (people didn't have to pay for & wait for a "true" evaluation of their home (appraisal) and NOW much of the population is over mortgaged and CMHC & Genworth have the audacity to slap the consumers hands !! Shame on them!
Posted by: CityGirl | May 30, 2021 8:39:10 AM
Although I agree with most of the changes to mortgage rules, what I don't understand is why Jim Flaherty has done nothing to change rules on unsecured debt! He could limit the interest rate being charged on credit cards or reduce the maximum allowable in unsecured credit. Sadly, it's the unsecured credit and consumer debt that gets a lot of people in to financial trouble. OR if he was really concerned about consumer spending and debt loads, he would allow a one-time (tax free) withdrawal from RRSPs to pay off consumer debt. Still further, I think school boards need to add household finances and budgeting to the curriculum for all Canadian high school students. It should be mandatory for all students.
Posted by: sam | May 30, 2021 9:14:51 AM
I do not know where they get their stats...if our interest rates were to rise some many would be in for a shock...that is why there has been no interest hikes, because we would be in worst shape..
The Bank of Canada has repeatedly raised its concerns about household debt.
The ratio of debt-to-personal disposable income is now above 150 per cent, and some economists predict it is likely to reach by late next year the 160 per cent peak experienced in the U.S. and the U.K. before their real estate corrections occurred.
TD Bank chief economist Craig Alexander has estimated more than one million Canadian households, or about 10 per cent of those that currently have debt, will have to devote 40 per cent or more of their income to making their monthly debt payments if rates rise by two-to-three points to more normal levels.
Posted by: neondon | May 30, 2021 11:07:55 AM
Leah: You are not correct about the ability to port your existing CMHC/Genworth mortgage from one property to another if you sell and purchase a new home. You can still do that without paying the full new premium, and without requiring a 20% down payment. You will have to pay a top-up premium if you require more money for the new purchase than you had on your existing outstanding mortgage, however the top-up premium is typically much less than the full premium would be. I work in the banking business and I completed this for someone just the other day. Personally, I do not have a problem with limiting refinance to max LTV 80%. The purpose of CMHC/Genworth is to help people purchase a home when they will find it difficult or too time consuming to save up a 20% down payment. The purpose is not to help people buy themselves out of their poor consumer spending choices by taking out all the equity in their homes. If you have made poor consumer spending choices they you should make changes to your spending habits, live below your means, and begin paying off your debt. It is a government sponsored program. Government funds (read: my tax dollars) should not be used to help you continue to make poor financial decision by insuring your mortgage to help you buy your way out of debt. I like the idea of allowing 30 year amortization for people who meet the Home Buyers Plan guidelines, and 25 year amortization for those who do not. This will make it a bit easier for first time home buyers, while ensuring those who are trying to move up to a bigger home have to ensure they are not biting off too much home when they move up. I think this is fair all around.
Posted by: Viver | May 30, 2021 12:03:13 PM
I do see here in Calgary that people are paying very high rent for not much of a place. Some of these people were saving to buy their own home but because of the tightened mortgage rules are now unable to buy their own a home. They do have an organization here where they help first time home buyers who make 70 thousand or less per year to buy their first home. One lady said she was able to buy her own place and it was costing her less then when she rented and now was able to put that money to something sustainable for her future. Also the shelters are full of animals that people surrender because they cannot find a place to rent who will allow animals. We really are a greedy society and no wonder people are homeless. More should be done to help people own their own home.
Posted by: Sarah Ann | May 30, 2021 11:07:42 PM
My problem is I dont know what to do! I was pre approved for a home at 425,000 that must have a rentable suite bringing in 1000 income. I own a small business and I make around 30,000. I have a 100,000 down payment. Currently I rent for 700. Most of the homes are not in great shape at this price and I would need to put money into them. I have no debt now and I payed over a 25 grand car loan in half the time i needed to .I am a excellent saver, do not travel much or dine out much. pro cook here:) Should I continue to rent and save or jump into buying a home. I am in my early 40s. thanks