July 3, 2012

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Recently, the federal government announced more changes to tighten Canada’s government-backed insured mortgages, which will mostly affect first-time homebuyers. These changes bring the loan-to-value ratio to more than 80%.

The changes include:

  • A reduction in the maximum amortization period to 25 years from 30 years. This will reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner. The maximum amortization period was set at 35 years in 2008, and was further reduced to 30 years in 2011.
  • A decrease in the maximum amount Canadians can borrow when refinancing to 80 % from 85% of the value of their homes. This will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes.
  • Fixing the maximum gross debt service ratio at 39% and the maximum total debt service ratio at 44%. This will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.
  • Limiting the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.

According to Minister Flaherty the new rules will take effect on July 9, 2012.

For more information contact one of our advisors here.

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