Canadian Mortgage News - CMHC Mortgage Amortization Changes and How They Will Impact You

The second half of this year has been big for Canadian mortgage news. In July, the Canadian Mortgage and Housing Corporation (CMHC) amended its guidelines and mortgage amortization rules in an effort to try and decrease the debts of current and future homeowners in Canada. These guideline changes have had some significant impacts, particularly for those individuals seeking mortgages of over 80% financing.

The most significant change is with regards to the mortgage amortization period. Any mortgage contract prior to July 9^th provided the option to choose a 30 year amortization period. After July 9^th though, this mortgage amortization period has changed from 30 to 25 years. This will, on average, increase monthly mortgage payments by about 12%.

There are some pros and cons depending on your current financial situation that accompany these mortgage amortization period changes, especially for first time home buyers. Firstly, these changes make it a bit tougher to get approved for a mortgage.  Since one of the goals of these changes overall is to ensure that the individual seeking the mortgage is better prepared for home ownership, a shorter mortgage amortization period may affect your approval. When a lender assesses an individual’s ability to financially manage a mortgage, they usually calculate the maximum amount that is financially manageable. Since a shorter mortgage amortization period increases the monthly mortgage payment, this may negatively impact your ability to receive approval for a mortgage.

At the same time, if a small increase puts you over the threshold of affordability, perhaps it is time to rethink the amount that is being sought.

On the flipside, the positive aspects relate to the decreased interest that you will pay thanks to a shorter mortgage amortization period. Knocking 5 years off of your mortgage term can save you significant interest in the long run, and leave you mortgage free 5 years sooner.

Another result of the CMHC guideline changes impact mortgage refinancing. Mortgage refinancing, originally maxed at 85% of the value of the home, has been reduced to 80%. This change, like the altered mortgage amortization period, is meant to promote saving through home equity and to decrease the debt load for current homeowners.

Since these changes are due largely in part to the high amount of debt being carried by average Canadians, it is no surprise that yet another change to CMHC guidelines is in respect to individual gross debt service ratio. Gross debt service ratio, which refers to all of your property-related costs (mortgage payments, property taxes, heating, condo fees, etc.), must not exceed 39% of your total income. This has been decreased from 44%.

Another CMHC change aside from a shortened mortgage amortization period, lower mortgage refinancing, and a lower gross debt service ratio, includes the banning of government-backed mortgage insurance on those properties costing over $1 million – although this is less of an impact for most of the population that the other changes.

For more Canadian mortgage news or to find out more about CMHC guideline changes including a shorted mortgage amortization period, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com

Buying a Home in Toronto (G-T-A) Blog Series Part 1 - The Toronto Real Estate Professionals You Will Need in Your Corner

Buying a home in the Greater Toronto Area? If so, there are many different things to consider throughout the process. Some of the most important are those people that will assist you in various areas: Real Estate Professionals!  This team of qualified individuals should include:

-              Realtor
-              Mortgage broker
-              Real estate lawyer
-              Home Inspector
-              Insurance Broker

All of these people will be necessary to you throughout the home buying process. So who are they and what role do they play in helping you buy a home in Toronto?

A realtor is the real estate professional that will help you find your dream home. Their job is to relieve you of the legwork necessary when trying to find that perfect property, pointing you in the right direction based on your predetermined list of wants/needs.  This means that you save yourself the hassle of combing through the available property listings. When you have found “your” house, the realtor will also work you through the negotiation process, allowing you to get the best deal on your new property!

A mortgage broker is the real estate professional who will help you secure a mortgage and at the best mortgage rate available in order to have the funds to buy a home. Your mortgage broker will discuss the different types of mortgages out there, and work with the different banks to obtain the greatest amount of money at the lowest interest rate possible.

A real estate lawyer is the real estate professional that will complete all of the necessary legal documentation required when buying a home. Your real estate lawyer will explain your rights and make sure that they are protected in any contracts you sign. They will make sure that there are no outstanding liens or debts against the house that can impact your ability to close.  They will also attend the closing of the home and make sure that you understand everything that has taken place.

A home inspector is the real estate professional that will make sure that the house you are planning to buy is safe to live in and that there will be no unexpected repairs necessary once you take possession of your new home. The home inspector will do a thorough inspection of the property to determine what needs to be fixed, and then you will be able to determine whether this will be fixed by the seller, if you would want to fix it yourself, or if you want to find a different house altogether. Making an offer without having a home inspection can have major consequences – and can mean great cost to you. This is easily avoided by having a home inspection done when buying a home in Toronto.

An insurance broker is the real estate professional that will make sure that your home and everything in it is protected. Homeowners insurance covers unexpected incidents such as fire, explosion, and theft, and allows you to rebuild or replace damaged items. Your insurance broker will work with you to find the best insurance policy that works for you. When buying a home in Toronto, securing homeowners insurance through an insurance broker is essential!

These five real estate professionals are very important when you are planning to buy a home in Toronto.  Making sure that you are properly covered and protected is the responsibility of all of these individuals, and buying a house without them is a bad idea! Before buying a home in Toronto, make sure you have assembled a team of real estate professionals in order to make the home buying process smooth and simple!

For more information about buying a home in Toronto and the real estate professionals you will need in your corner, please contact Paul Mangion by calling The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com