Update June 21: I received an email from a mortgage broker which states the following: “If you have a client on the fence if they produce a contract within the next 2 weeks (to July 9th) they will be subject to the old rules until December 2012.”
The government will reduce the maximum amortization period for a government-insured mortgage, lowering it from 30 to 25 years, and also drop the upper limit that Canadians can borrow against their home equity from 85 per cent to 80 per cent. The government expects less than 5% of home buyers will be affected by the changes.
If you were paying attention, you’ll understand that this only affects mortgages where the down payment is less than 20%. Additionally, Ottawa will limit government-insured mortgages to home purchases of less than $1 million.
Derek Holt and Dov Zigler, economists, Scotia Capital: “Home sales will accelerate very briefly over the next couple of weeks before the July 9th implementation period.”
The announcement marks the fourth time in four years that the government has clamped down on mortgage rules, with the latest being just last year when the maximum amortization was dropped to 30 from 35 years.The tighter rules will come into effect on July 9.
This should have the effect of dampening demand(and consequently lower prices), as fewer buyers will now qualify, considering a shorter amortization period demands higher payments. On the flip side of that coin, it will also mean homeowners build up equity in their homes faster.
Read more Ottawa tightening mortgage rules
Will this new measure achieve the government’s goal of a soft landing without pushing the market into a correction that goes too far? I would have preferred to see the amortization left alone when it was at 25 years in 2006. Will we see a last-minute rush by buyers to get in under the wire?