New Canadian Mortgage rules - Pros and Cons

New Canadian Mortgage rules - Pros and Cons

The new Canadian mortgage rules, beginning March 18^th, force homeowners, or those looking to purchase a home, to focus on the future and long-term stability.  What does this mean to you as a Nanaimo area homeowner?

Canada has been conservative with its lending requirements.   The benefit of conservative lending policies is that it forces Canadians to slow the pace of their household debt

Beginning March 18, the new Canadian mortgage rules state the maximum amortization period for government-backed insured mortgages is 30 years, down from 35 years, and the maximum amount Canadians can borrow in refinancing their mortgages is 85 per cent, down from 90 per cent.

Let's have a look at how the new Canadian mortgage rules affect you as the home buyer.  A 30-year amortization will require a higher monthly payment and a higher gross income to qualify.  If you were to compare 30-year amortization to 35-year amortization the difference in payments would likely be close to $100.  In the following example on a $275,000 mortgage you will note the increased payments but you will also see the savings in interest paid out over the long run is staggering.

30 Year Amortization :Based on 3yr fixed @ 3.6%, 30 year amortization the bi-weekly P&I would be $623.06. Assuming no change in rates the interest charged for the 30yr amortization would be $147,046.25

35 Year Amortization: Based on 3yr fixed @ 3.6%, 35 year amortization the bi-weekly P&I would be $574.12 assuming no change in rates the interest charged for the 35yr amortization would be $172,370.63

Note that although the longer amortization brings you a lower payment difference of $48.94 bi-weekly it will also cost you $25,324.38 more in interest over the full amortization period pending no changes in interest rates for the duration of the amortization. It will also have you paying your mortgage for a full 5yrs more!

Having a shorter amortization period forces a homeowner to focus on the future and long-term stability.  A slightly higher monthly mortgage payment translates into a savings in interest that would be in the thousands of dollars.  One of the pros of the new Canadian mortgage rules is that they encourage homeowners to pay out their mortgages five years sooner!