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May 29, 2021

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



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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...