Canada Tightens Mortgage Rules

[bizaro86]

[QUOTE=amorak;2897501]Sorry - what's the difference? QUOTE]

A renewal is where everything stays the same. You can't increase balance or increase the amortization. Your bank sends you a renewal notice, you sign it, and send it back.

If you wanted to refinance a 40 year mortgage with 35 years left, (either by increasing the balance or changing institutions) your new mortgage would have to have a 30 year amortization, so the payments would go up slightly, but it'd be paid off sooner.

It's probably not a big deal for most people, since the amount the payments would increase isn't huge. Probably will mean first time buyers buy something a bit less expensive.

[albertGQ]

Originally Posted by fotze

But now the bank can totally fistfata the person.

Your new renewal rate is 12%. Oh you don't like that rate? Its not competitive? Try phoning our competitors, here are the phone numbers numbers. Oh right you can't. The rate is now 12.5%.

Alot of 35 year mortgages have 5 year terms, so when that is up for renewal, the new rules won't even apply. Even for people with 2 or 3 year terms will have 32 or 33 years remaining. So if they're refinancing (which they might not be eligible due to the new 85% LTV rule), their payments won't increase by that much.

[Frequitude]

I'm confused, despite this question being answered a couple times so far. My 35 year mortgage is up in September. Its variable with a rate of prime minus 0.8%. Does that mean my renewal offer will just be their current variable mortgage?

And I'm with Fotze...won't the banks be able to bend people over?

[Coys1882]

Originally Posted by Frequitude

And I'm with Fotze...won't the banks be able to bend people over?

I can't imagine that they would let that happen - neither the government nor the banks would want to see even more foreclosures than we already have. What would the bank do with all these houses if the people they would need to buy them could no longer qualify?

[PowerPlayoffs06]

This kinda screws my wife and I over. We were just looking to get our of our small one bedroom apartment and buy a home to have our first child in. We were looking for around 320k and just found out about 10 minutes ago that because of these new rules that if we don't have a firm purchase agreement before March 18th, we can only amortize for 30 years and thus qualify for about 30k less after that date. So we'd have to sell our apartment and have a finalized purchase on our own new home all within 2 months. =/

[Bring_Back_Shantz]

Originally Posted by PowerPlayoffs06

This kinda screws my wife and I over. We were just looking to get our of our small one bedroom apartment and buy a home to have our first child in. We were looking for around 320k and just found out about 10 minutes ago that because of these new rules that if we don't have a firm purchase agreement before March 18th, we can only amortize for 30 years and thus qualify for about 30k less after that date. So we'd have to sell our apartment and have a finalized purchase on our own new home all within 2 months. =/

No offence dude, but how is that getting screwed?
It's people that were overextending themselves by getting 35 year mortgages that got the everyone in this mess in the first place.
Maybe having to get a house for 30k less over 30 years isn't such a bad thing.

[Mike Oxlong]

Originally Posted by Frequitude

I'm confused, despite this question being answered a couple times so far. My 35 year mortgage is up in September. Its variable with a rate of prime minus 0.8%. Does that mean my renewal offer will just be their current variable mortgage?

And I'm with Fotze...won't the banks be able to bend people over?

If your 35 year amortization is up for renewal this September and you were on a 5 year term that would mean you have 30 years left, which fits perfectly within the new framework.

If you were on a 2 or 3 year term and have 32 or 33 years left you will likely have to renew at a 30 year amortization which will likely increase your payment slightly.

Just as a side note for everyone. DO NOT EVER sign the renewal notice you get from your bank. Shop around (talking to a mortgage broker is the best idea) and find out what the best rates are. Banks are notorious for sending out renewal notices at a much higher rate than what you could negotiate down to. Unfortunately many people just sign them thinking their bank is giving them the best rate and they end up getting screwed. If you want to renew with your bank at least make sure you find out what the best rates are so you can negotiate with them.

[Winsor_Pilates]

Originally Posted by Finner

Now as they tighten, anyone who entered the market in 06/07/08/09 due to the new rules is going to suffer as home prices drop as it makes it tougher for new/young buyers to qualify. I see homes in the 200-400k suffering in price as a direct result. All the people who could earlier qualify for say 300k houses can now only buy 270k houses.

Originally Posted by IliketoPuck

If I am following this correctly, house prices will drop, allowing me to pick up a nicer establishment for relatively less than someone would have paid in the last 5 years?

Originally Posted by Pacem

March 18th IIRC.

I just started house hunting (first time buyer) and seen this announced today.

I've been actively watching housing prices for the last year. There has been a recent dip in asking prices for places in the area we are looking at. If there is speculation of an even further dip....

I'm curious as to what effect this will have on housing prices.

Can I have a look at the crystal balls you guys have?

[Mike Oxlong]

Originally Posted by Bring_Back_Shantz

No offence dude, but how is that getting screwed?
It's people that were overextending themselves by getting 35 year mortgages that got the everyone in this mess in the first place.
Maybe having to get a house for 30k less over 30 years isn't such a bad thing.

Not everyone who got into a 35 year amortization were over extending themselves. Lots of people get the longer amortizations because it allowed them to get into the housing market affordably. Once circumstances in their lives change (perhaps they get a promotion and raise, they get married and have dual income, maybe the wife goes back to work after being on maternity leave etc....) They have more income and can handle higher payments and are able to pay the mortgage down faster. They can even renew their mortgage at 20 or 25 year after starting with a 35 year term. Just because people start with a 35 year amortization doesn't mean it will take them 35 years to pay it.

And it really isn't the people who took 35 year amortizations that got us in this mess. It's the people that take on huge consumer debt like credit cards with crazy interst rates and those that continue to refinance their mortgage to use all of their home's equity. That is the household debt the government should be worried about.

Not saying I disagree with moving the amortization periods from 35 to 30 years but that is a very small issue.

[Winsor_Pilates]

Originally Posted by Mike Oxlong

It's the people that take on huge consumer debt like credit cards with crazy interst rates and those that continue to refinance their mortgage to use all of their home's equity. That is the household debt the government should be worried about.

Bingo. People using the equity in their homes to go on shopping sprees for new SUV's, vacations and reno'ing everything are the main reason Canadian debts are a mess.
Of course housing affordability gets tough on people when you waste money you don't have on things you don't need.

[Bring_Back_Shantz]

Originally Posted by Mike Oxlong

Not everyone who got into a 35 year amortization were over extending themselves. Lots of people get the longer amortizations because it allowed them to get into the housing market affordably. Once circumstances in their lives change (perhaps they get a promotion and raise, they get married and have dual income, maybe the wife goes back to work after being on maternity leave etc....) They have more income and can handle higher payments and are able to pay the mortgage down faster. They can even renew their mortgage at 20 or 25 year after starting with a 35 year term. Just because people start with a 35 year amortization doesn't mean it will take them 35 years to pay it.

And it really isn't the people who took 35 year amortizations that got us in this mess. It's the people that take on huge consumer debt like credit cards with crazy interst rates and those that continue to refinance their mortgage to use all of their home's equity. That is the household debt the government should be worried about.

Not saying I disagree with moving the amortization periods from 35 to 30 years but that is a very small issue.

I agree 100%, but you can't deny that the flood of people who were now buying houses because they could "afford" 35 year mortgages with 0 down was also a big part of the problem.

I'm not saying this specifically about PP06 as I don't know the guy, but to me it seems like the kind of people who complain that they're getting "screwed" by this change are probably more likely to have that sense of entitlement that casued a lot of this mess to begin with.

[Mike Oxlong]

Originally Posted by Bring_Back_Shantz

I agree 100%, but you can't deny that the flood of people who were now buying houses because they could "afford" 35 year mortgages with 0 down was also a big part of the problem.

I'm not saying this specifically about PP06 as I don't know the guy, but to me it seems like the kind of people who complain that they're getting "screwed" by this change are probably more likely to have that sense of entitlement that casued a lot of this mess to begin with.

Why is it a sense of entitlement?

He is planning on selling his current place so he looks like he has his down payment put together. Sounds like he has done his research and determined what price range he can buy at based on the current available products and amortization periods. He and his family have a plan in place to make this happen and all of a sudden the government change the rules on him and he has to come up with a new plan on a very major decision.

I don't see the entitlement argument at all. If he is playing by the rules of the game and all of a sudden the rules change I can see why he feels screwed. It's not like he is asking them to change the rules to suit his situation, he is just trying to make the best situation for his family based on what he has been told one day and now the next day he is told something else, which causes a major kink in his plan.

I'm just using PP06 as an example as well. He sounds like he has his act together while others may not, and may feel they are entitled to get zero down 35 year amortizations, just because they were available 2 years ago.

I agree with you that zero down mortgage with 35 or even 40 year amortizations were a big part of the problem. I still can't believe products like that were actually available. Making people put down at least 5% of their own cash is essential.

[Sylvanfan]

Sweet, I now have a super high risk mortgage!!

Serious question here. I had to go with a 35 year amortization to qualify to buy my last house because I was the only one working at the time, and I had no employment history with the company I was at, plus being a draftsman...I'd been unemployed for parts of the last two years because there is no more use for us in the world anymore....whell there is, if you live in the Phillipines and work for 75 cents an hour. When you have the type of family I do...no one will rent to you and even than...rents were going to be more than what I pay in mortgage and property taxes for my current house.

Now that I've passed my 6 months, and my wife is back to work, I'm pretty sure we should be able to qualify for a 25 year amortization again I mean the payment would be like an extra $40 a week. But of course to get out of this mortgage we'd have to pay 3 months interest. We can pre-pay up to 15% a year on the mortgage. So should we put extra money as prepayment against the principal for the next 4+ years and than see if we can amortize the balance over 15 years type of thing. Or should I try to redo it now for a 25 year amortization?

[Mike Oxlong]

Originally Posted by Sylvanfan

Sweet, I now have a super high risk mortgage!!

Serious question here. I had to go with a 35 year amortization to qualify to buy my last house because I was the only one working at the time, and I had no employment history with the company I was at, plus being a draftsman...I'd been unemployed for parts of the last two years because there is no more use for us in the world anymore....whell there is, if you live in the Phillipines and work for 75 cents an hour. When you have the type of family I do...no one will rent to you and even than...rents were going to be more than what I pay in mortgage and property taxes for my current house.

Now that I've passed my 6 months, and my wife is back to work, I'm pretty sure we should be able to qualify for a 25 year amortization again I mean the payment would be like an extra $40 a week. But of course to get out of this mortgage we'd have to pay 3 months interest. We can pre-pay up to 15% a year on the mortgage. So should we put extra money as prepayment against the principal for the next 4+ years and than see if we can amortize the balance over 15 years type of thing. Or should I try to redo it now for a 25 year amortization?

I would double check your payout penalty first. If you are in a fixed mortgage chances are it will be far more expensive than just 3 months interest.

If you take advantage of your pre payment options there is a good chance you can effectively change your amortization from 35 to 25 years or even less by increasing your monthly payments.

Here's a good mortgage calculator you can use to determine how many years you can knock off your mortgage by increasing your payments:
http://calculators.dominionlending.c...lator-mortgage

[Mike F]

Originally Posted by Mike Oxlong

I would double check your payout penalty first. If you are in a fixed mortgage chances are it will be far more expensive than just 3 months interest.

If you take advantage of your pre payment options there is a good chance you can effectively change your amortization from 35 to 25 years or even less by increasing your monthly payments.

Here's a good mortgage calculator you can use to determine how many years you can knock off your mortgage by increasing your payments:
http://calculators.dominionlending.c...lator-mortgage

Be careful how you go about checking your prepayment penalty. A lot of mortgages I see state that if you request a payout statement you cannot then take advantage of any prepayment options. Prevents people from prepaying a bunch right before refinancing and avoiding a big chunk of the penalty.

[AFireInside]

Originally Posted by PowerPlayoffs06

This kinda screws my wife and I over. We were just looking to get our of our small one bedroom apartment and buy a home to have our first child in. We were looking for around 320k and just found out about 10 minutes ago that because of these new rules that if we don't have a firm purchase agreement before March 18th, we can only amortize for 30 years and thus qualify for about 30k less after that date. So we'd have to sell our apartment and have a finalized purchase on our own new home all within 2 months. =/

Or you can wait for about 6 months after the changes take effect, and hopefully a 320k house has dropped it's listing price by about 20 - 30 k since many looking to buy that house can't afford the 320k asking price.

Then you save 30,000 and you aren't getting screwed, you are getting ahead.

At the same time the property you are purchasing is getting closer to it's actual worth instead of it's inflated value due to low interest rates, and the 0 down 40 yr mortgages that caused prices to artificially inflate.

[WilsonFourTwo]

Originally Posted by amorak

They had such thing as 40 year mortgages here?!?!?

You'd likely be retired and still be paying off your house, wow!!!

Hey, I'm more than happy to admit that I've got a 40-year amortization. I'm also happy to note that my mortgage will be paid off in about 15 years.

I know that I'm the exception to rule, but the 40-year was a great opportunity to manage some risk and cash flow over an extended period. If I want to pack up and vanish for a year, it would be very easy to rent my home and be cash positive. If I remain in my home, I'm so "under-extended" that I can prepay disgusting amounts of principal each year.

Mortgage rules haven't been the problem, discipline has been. That said, I support changing the rules at this point to address our national lack of discipline.

[WilsonFourTwo]

Originally Posted by Bring_Back_Shantz

No offence dude, but how is that getting screwed?
It's people that were overextending themselves by getting 35 year mortgages that got the everyone in this mess in the first place.
Maybe having to get a house for 30k less over 30 years isn't such a bad thing.

Well, I think the timing kind of screws him (and wife).

That puts their maximum budget about $290,000. Given that 'Starter homes' are around $310,000+ range, it really cuts down on the number of quality options.

In time (perhaps 12-24 months??) prices at the bottom end will deflate, and make more homes available in that price range. They're screwed because that hasn't happened yet, so they'll have to (I'm assuming) put off starting their family for a while longer.

[Winsor_Pilates]

Originally Posted by AFireInside

Or you can wait for about 6 months after the changes take effect, and hopefully a 320k house has dropped it's listing price by about 20 - 30 k since many looking to buy that house can't afford the 320k asking price.

Yeah, but by your logic all of the buyers currently looking at 350K houses will now be after his 320K house, as it's now in their price range.
The the buyers looking at 380K houses will be after the 350K and so on, and so on...

It's not like every potential buyers will be looking at 290K and the 320K house will have no interest.

[Winsor_Pilates]

Originally Posted by WilsonFourTwo

Hey, I'm more than happy to admit that I've got a 40-year amortization. I'm also happy to note that my mortgage will be paid off in about 15 years.

I know that I'm the exception to rule, but the 40-year was a great opportunity to manage some risk and cash flow over an extended period. If I want to pack up and vanish for a year, it would be very easy to rent my home and be cash positive. If I remain in my home, I'm so "under-extended" that I can prepay disgusting amounts of principal each year.

Mortgage rules haven't been the problem, discipline has been. That said, I support changing the rules at this point to address our national lack of discipline.

Your not the exception to the rule.
The vast majority of Canadians pay off their mortgages ahead of the amortization period.
You're likely the exception if you do it in 15 (awesome!), but most would still do it well ahead of 40.