Since the height of the credit crisis, finance minister Jim Flaherty has clamped down on mortgage lending. New lending rules were handed down in 2008, 2010 and in 2011. A fourth round of mortgage restrictions was announced in June and will come into effect on July 9, 2012.
The new lending rules that were announced, have been brought in to support the long term stability of the housing and mortgage markets in Canada and to promote savings through home ownership.
Starting on July 9, 2012, individuals and families with less than a 20% down payment will no longer qualify for a prime mortgage with a 30 year amortization period—the maximum will be 25 years. Reducing the amortization period will increase the monthly payment moderately but over the life of the mortgage, this small increase will result in a significant savings in interest costs.
Another major change is the amount that you will be able to refinance. The maximum amount will drop to 80% from the current 85% of the value of the home. By limiting this, it will promote an increase in savings through home ownership which is part of the government’s mandate.
It was also announced that the maximum gross debt services ratio (GDS) will go to 39% while the total debt service ratio (TDS) would be reduced to 44%. These ratios’s measure the amount of a household income that is required to service debt payments and are already used by lenders. By setting a limit on the GDS and reducing the TDS, it will help Canadian households from becoming over extended and vulnerable to interest rate hike when this happens.
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