Canada is taking preventative measure to avoid another housing-mortgage meltdown. The Government announced policy changes to they way financial institutions cut mortgage deals. Here is are the highlights:
Cap the Amortization Schedule
- Reduce amortization period form 35 to 30 max where loan to value exceed 80%.
This will cause higher monthly payments however save in interest charges over the course of the loan. Ex: a $300,000 mortgage @ 6% for 30yrs vs 35 will cause an $88 higher payment but realized interest savings is $70,900+!
Borrowing Cap
- Refinancing: Canadians can only borrow 85% of the home value down from 90%.
This prevents a homeowner from liquidating all their equity.
HELOC
- No HELOC insurance on non-amortizing lines of credit.
This prevents homeowners from borrowing against their property to pay off unsecured debt (ie: Credit Cards). This transfers the risk from the Credit Card companies to the Government.
The US policy makers are working hard to lobby more regulations to prevent Wall Street and ourselves from causing another financial collapse. Maybe the US is taking notes from our neighbors up north?
This article was inspired and adapted from Canadian Mortgage Changes You Need To Know
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