New Mortgage Rules - What They Mean for Canadians

Recently, the Canadian government announced a new set of changes to Canada's mortgage rules that come into effect July 9 2012. If you're planning on buying a home or refinancing an existing home, it's important to understand how these changes may affect your plans. So here's an outline of the new changes announced by Finance Minister Jim Flaherty and how they will affect your home financing options.

Maximum amortization period reduced

First, the new rules will reduce the maximum amortization period (this is the length of time it takes to pay off a mortgage) from 30 years for government insured mortgages to 25 years. This change has been introduced in an effort to encourage homeowners not to stretch themselves too greatly when purchasing a home, especially as interest rates are expected to rise in the future. By reducing the amortization period the amount of interest homeowners pay will also be reduced over the life of their mortgage.

For borrowers who have purchased a home already and were approved for financing before June 22nd 2012, the new rules will not apply. For borrowers who were approved between June 22nd and July 8th 2012, but closing after December 31, 2012, the new default insured rules will apply.

Refinancing maximum reduced

The government is also lowering the maximum mortgage amount for refinancing to 80% of the appraised value of properties from the current 85%. This means, for a home worth $300,000, you will only be able to access up to $240,000 when refinancing, compared to $255,000 before this regulation takes effect. If you're in a position where you wish to consolidate debt, refinancing is still an option available to you, and one that often saves you money on interest costs. This new regulation simply seeks to ensure Canadians maintain more equity in their homes in the future.

These government changes have been introduced to ensure that the housing market in Canada continues to be stable, as well as to encourage Canadians to avoid overextending themselves financially.

So what does this mean for you? If you're buying a new home, considering refinancing your home, or looking for ways to consolidate other debt, give us a call. We're happy to walk you through what impact, if any, these changes may have on your individual situation. Or if you'd like to learn more, there are additional articles and videos available about home financing, managing and reducing debt, and credit options.

*Personal lending products and residential mortgages are offered by Royal Bank of Canada and are subject to its standard lending criteria.