Canadian Mortgage rules changing

[Bobblehead]

The federal government announced this month it will no longer insure mortgages with an amortization period greater than 35 years.

Ottawa will also now require a minimum down payment of five per cent for government-backed mortgages.

http://www.canada.com/calgaryherald/...3-343857673687

However, the changes are being made "to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada," the government says.

I can see this causing a short spike in prices as buyers try to beat the deadline, then the housing market will slow for a few years while people save up the 5% down payment.

[SportsJunky]

Fata, no?

http://forum.calgarypuck.com/showthr...light=mortgage

[Bobblehead]

Originally Posted by SportsJunky

Fata, no?

http://forum.calgarypuck.com/showthr...light=mortgage

Yes.

That'll teach me for taking a vacation.

[GoinAllTheWay]

"The federal government announced this month it will no longer insure mortgages with an amortization period greater than 35 years."

I don't understand this, in what way are they insuring my mortgage now? When I bought my place in 99, it was a 25 yr mortgage.

Woops! Guess I'll post my question in the other thread.

[red sky]

I believe 25 year mortgages are insured by the bank. CMHC is insured by the federal government and is for mortgages > 25 years.

[Mike Oxlong]

Originally Posted by GoinAllTheWay

"The federal government announced this month it will no longer insure mortgages with an amortization period greater than 35 years."

I don't understand this, in what way are they insuring my mortgage now? When I bought my place in 99, it was a 25 yr mortgage.

Woops! Guess I'll post my question in the other thread.

When your downpayment is less than 20% (used to be 25%) you are required to get mortgage insurance. This insurance provided by CMHC, Genworth, or AIG protects the lender in case you default. You pay a fee for this insurance depending on the amount of the mortgage and how much of a downpayment you had. Most people just get it blended in with their mortgage payments.

Not to be confused with mortgage life insurance which protects you in case you die or are seriously injured.

[McG]

Mike is bang on.

The problem with longer term mortgages is that when you tend to extend the amortization...you tend to qualify people who would not otherwise meet some minimum criteria. By requiring 35 years or less amortization, the government is saying that the 40 year mortgage will have to be a pure credit decision by the issuing bank, rather than relying upon CMHC or whatever for the guaranteed payment if the mortgagee defaults.

the problem in the states was that many people who wouldn't have qualified otherwise were given mortgages which kept demand high for a while...but when rates increased or the term changed these people could no longer afford it.

frankly, this is a prudent move.

[fredr123]

Forgive me if this was answered in the earlier thread on the same topic, but what happens to all those people who had a 40 year mortgage when it comes time to renew? Will they be able to get the same amortization with whatever the prevailing interest rate of the day may be or will they have to find a new 35 year (or less) mortgage?

[onetwo_threefour]

Originally Posted by fredr123

Forgive me if this was answered in the earlier thread on the same topic, but what happens to all those people who had a 40 year mortgage when it comes time to renew? Will they be able to get the same amortization with whatever the prevailing interest rate of the day may be or will they have to find a new 35 year (or less) mortgage?

Well, we haven't heard anything about it but I can only assume that upon renewal the existing insurance would continue as the premium has already been paid. If one were to refinance at maturity it would be different, but with a renewal I can't see the CMHC teminating coverage when they already have the premium.

[fredr123]

Originally Posted by onetwo_threefour

Well, we haven't heard anything about it but I can only assume that upon renewal the existing insurance would continue as the premium has already been paid. If one were to refinance at maturity it would be different, but with a renewal I can't see the CMHC teminating coverage when they already have the premium.

Thanks, makes sense especially in light of word that existing 40 year mortgages would be grandfathered.

[GoinAllTheWay]

Originally Posted by Mike Oxlong

When your downpayment is less than 20% (used to be 25%) you are required to get mortgage insurance. This insurance provided by CMHC, Genworth, or AIG protects the lender in case you default. You pay a fee for this insurance depending on the amount of the mortgage and how much of a downpayment you had. Most people just get it blended in with their mortgage payments.

Not to be confused with mortgage life insurance which protects you in case you die or are seriously injured.

I getcha, so they are not insuring ME persay, but the people lending me the money making it easier for me to acquire a mortgage.

[Sylvanfan]

Did they put out something in these new rules that force Banks to push deals through in 5 days. After months I finally get an offer on my house, but the guy wants it for August 1st. I laughed saying there is no chance you can get the money to me by August 1st. And at this point in time I have no hope in hell of getting any type of truck that can get my stuff out of there. Sucks I'll have to let the only offer I get die because of the timing of the offer.

[Mike Oxlong]

Originally Posted by McG

Mike is bang on.

The problem with longer term mortgages is that when you tend to extend the amortization...you tend to qualify people who would not otherwise meet some minimum criteria. By requiring 35 years or less amortization, the government is saying that the 40 year mortgage will have to be a pure credit decision by the issuing bank, rather than relying upon CMHC or whatever for the guaranteed payment if the mortgagee defaults.

the problem in the states was that many people who wouldn't have qualified otherwise were given mortgages which kept demand high for a while...but when rates increased or the term changed these people could no longer afford it.

frankly, this is a prudent move.

Once these changes come into effect October 15th there won't be ANY banks offering 40 year ammortizations. Many lenders have already stopped the 40 year ammortizations and are strictly working on the 35 year max as of now.

If you currently have a 40 year ammortization it will be grandfathered in and you will remain on 40 years however when it comes time to renew you are going to have to move to 35 year max.

As far as the situation in the US goes the ammortization period didn't have much to do with the crash. The crash was caused because lenders were loaning people money who had bad credit, poor income, and they give them 100% financing and sometimes up to 125% financing. They would offer them a teaser rate (discounted rate) for the initial start of the mortgage and when the discounted rate ended and rates went up on these people they had no way to make the payments.

That was the cause of the crash. Not 40 year ammortizations. I think especially in a city like Calgary 40 year ammortizations can really help especially first time homeowners get into a place. As they start earning more money they can always move it to 25 or 30 years as their situation improves. As long as they meet the credit, income and earning potential requirements they are no riskier than a 35 year ammortization.

[Mike Oxlong]

Originally Posted by Sylvanfan

Did they put out something in these new rules that force Banks to push deals through in 5 days. After months I finally get an offer on my house, but the guy wants it for August 1st. I laughed saying there is no chance you can get the money to me by August 1st. And at this point in time I have no hope in hell of getting any type of truck that can get my stuff out of there. Sucks I'll have to let the only offer I get die because of the timing of the offer.

I have lots of lenders that could get that deal pushed through that quickly. You still have 10 days as of today. He should be able to make it happen.

As for the moving truck, can't help you there.

[fredr123]

Originally Posted by Mike Oxlong

Once these changes come into effect October 15th there won't be ANY banks offering 40 year ammortizations. Many lenders have already stopped the 40 year ammortizations and are strictly working on the 35 year max as of now.

If you currently have a 40 year ammortization it will be grandfathered in and you will remain on 40 years however when it comes time to renew you are going to have to move to 35 year max.

As far as the situation in the US goes the ammortization period didn't have much to do with the crash. The crash was caused because lenders were loaning people money who had bad credit, poor income, and they give them 100% financing and sometimes up to 125% financing. They would offer them a teaser rate (discounted rate) for the initial start of the mortgage and when the discounted rate ended and rates went up on these people they had no way to make the payments.

That was the cause of the crash. Not 40 year ammortizations. I think especially in a city like Calgary 40 year ammortizations can really help especially first time homeowners get into a place. As they start earning more money they can always move it to 25 or 30 years as their situation improves. As long as they meet the credit, income and earning potential requirements they are no riskier than a 35 year ammortization.

I suck at math and haven't run the numbers myself, but how much would the monthly payments of a typical say $350,000 mortgage amortized over 40 years differ when the homeowners are forced to move to a 35 year mortgage upon renewal? If these folks bought at the height of the boom here in Calgary and find themselves with only a modest (or gulp no) increase in the value of their home, are they going to be at risk for losing their home thanks to the recently announced changes?

[Wookie]

Umm... correct me if I'm wrong. But if you have a 5 year term, 40 year amortization, when it comes time to renew you'll now have 35 years left on your amortization so there is nothing to worry about.

[MoneyGuy]

Originally Posted by Mike Oxlong

When your downpayment is less than 20% (used to be 25%) you are required to get mortgage insurance. This insurance provided by CMHC, Genworth, or AIG protects the lender in case you default. You pay a fee for this insurance depending on the amount of the mortgage and how much of a downpayment you had. Most people just get it blended in with their mortgage payments.

Not to be confused with mortgage life insurance which protects you in case you die or are seriously injured and is a crappy product so buy real insurance instead.

Edited for accuracy.

[onetwo_threefour]

Originally Posted by Wookie

Umm... correct me if I'm wrong. But if you have a 5 year term, 40 year amortization, when it comes time to renew you'll now have 35 years left on your amortization so there is nothing to worry about.

Assuming you started with a 5 year or longer term. (which is certainly the most common scenario)