Understanding How the New Mortgage Regulation Changes Can Affect You

On January 17^th, 2011, Finance Minister Jim Flaherty announced three mortgage regulation changes saying these regulations are meant to "encourage hard working Canadian families to save by investing in their homes and future." This means that effective March 18, 2011, it may become harder to buy a Halifax home or consolidate debt into your mortgage.

Just to recap, these three changes are:

1. A 30-year maximum amortization on insured mortgages over 80% LTV

2. An 85% LTV limit on insured refinances

3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

If you are currently looking to buy a Halifax home, just what do these changes mean to you? Let's review the highlights in a Q&A format to help you as a homeowner, or home buyer, understand how these changes can affect you.

Q: When must I apply in order to secure a 35-year amortization on a high-ratio mortgage or a 90% loan-to-value refinance?

A: To be safe, ensure that you are approved by Thursday, March 17^th, 2011.

However, be careful about making changes to your application after March 17th if those changes would require that your application be reapproved. Otherwise your mortgage could be underwritten under the new rules and could face changes or may not even close.

Q: How are pre-approvals affected?

A: The act of getting a pre-approval before March 17^th does not guarantee you'll be approved for a 35-year amortization. That's because insured pre-approvals that turn live after March 17^th will be subject to the new amortization limit of 30 years.

"Turn live" refers to the time when a borrower has signed a binding purchase agreement and submitted a full bona fide mortgage application with a specific closing date.

Q: How will the elimination of 35-year amortizations on high-ratio insured mortgages affect monthly payments?

A: The payment on a 30-year amortization is $34.72 higher for every $100,000 of mortgage, compared to a 35-year amortization. (This assumes a 4% sample interest rate and standard underwriting criteria.) Although this will increase your mortgage payment, it will save you thousands in interest at the end of your loan.

Q: Will 35-year amortizations still be available on conventional insured mortgages?

A: Yes, 35-year amortizations will still be available on conventional insured mortgages.

Q: What can people do if they want to refinance up to 90% after March 17th?

A: A small number of niche lenders offer uninsured refinances to 90% LTV. As time goes on, expect additional specialty lenders to hit the market with second mortgages up to 90%. In all cases, the rates will be notably higher than insured mortgage rates (often 3-6 percentage points higher, or more).

Q: I have a HELOC now. Will it be affected by the new HELOC rules?

A: Lines of credit put in place before April 18^th will generally be unaffected by the HELOC rule changes. Insured HELOCs will stay insured until they are discharged.

Q: Is 100% financing still available?

A: Essentially, yes. The government's rule changes did not eliminate one's ability to borrow a down payment. That means borrowers can still get their 5% down payment from lenders who offer cash-back down-payment programs.