In a move that seems to have taken many by surprise, in spite of repeated warnings that Canada’s housing markets are overheated and debt obligations of Canadians are too high, finance minister Jim Flaherty announced a fourth round of mortgage rule changes, likely more significant that the three rounds that came before these.
Effective July 9, thirty-year amortizations are off the table as the maximum period to retire your home loan is reduced to 25 years. According to the Canadian Association of Accredited Mortgage Professionals, 40% of real estate transactions that required a mortgage since 2011 were amortized over 30 years. The net effect for those buying in this way is similar to a near full percentage point interest rate increase and is likely to knock a few entry-level home buyers out of the market.
Other changes include an elimination of mortgage insurance options for buyers paying in excess of $1-million dollars for a home, a lowering of the maximum amount that a home owner can refinance to 80% of the home’s value, and the firming up of some maximum total debt service ratios for home buyers.
Full details on the rule changes and how they’ll be rolled out can be found in this document prepared by Genworth.
In a news release put out yesterday from the minister’s office, Flaherty said, “The adjustments we are making today will help [households] realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended.”
Is Canadian housing down for the count? I’m not sure, but I think the next few weeks are bound to be brisk.
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