Tightening of restrictions also eliminates zero-down-payment mortgages.
Yesterday, the Canada Mortgage and Housing Corporation (CMHC) announced that it was pulling the plug on 40-year amortization periods for mortgages, stating that it will no longer provide its government-backed insurance for these products. Consumers will also have to come up with minimum 5 per cent down payment when making a purchase, too.
My take? Other than the 5% down payment requirement, this doesn’t really change much. You can still get a 35-year amortization on your new mortgage. The change in monthly payment between 35 and 40 years is negligible. On a $300,000 mortgage at 5.5%, this amounts to a $64/mo difference.
Also, the CMHC isn’t the only source for mortgage default insurance. The two major private insurers, Genworth and AIG haven’t yet stated what they will do in response to this announcement. It’s interesting that the CMHC was the first to introduce the 40-year amortization and zero-down; the private entitites following suit, and now they’ve reversed their earlier decision.
Overall, I think this is a step in the right direction, though. Canada’s lending practices have always been a little on the conservative side, and this is a step back to that ideology.
If you are a buyer who needs a 40-year zero-down mortgage, you can still take advantage of your pre-approval or get pre-approved before October 15, 2008, when the new rules take effect – you should probably start looking for your home now. If you currently have a 40-year mortgage, not to worry, as this only applies to new mortgages after October 15.
–Tim Ayres – Sooke Real Estate Professional
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