Weekly Blog Round: CMHC Mortgage Rule Changed

Readers, before I discuss the mortgage rule changes for CMHC, I wanted to kindly ask that you take the time to vote me for my nomination of Top Canadian Investing Blog! I am down to 6th place and only you can make a difference. If you enjoy my blog, please give me a vote!

CMHC Mortgage Rules Change

Jim Flaherty, Finance Minister, made a recent change to the CMHC insurance rules which will see the following adjustments in July.

For anyone with less than 20% down, you won’t be able to get a 30 year amortization since CMHC won’t insure it. Your maximum amortization will be 25 years. The result of this change will prevent new home buyers to purchase a home without a higher monthly payment. Only 2 outcomes can mitigate this on your end: a salary increase or a higher down payment.
A home equity line of credit will be limited to 80% of your house value where by it previously was 85%. This will limit the borrowing power of home owners for potential speculative real estate investments.
On homes valued about $1 million, no CMHC insurance will be available. No big deal apparently since CMHC has barely needed to provide insurance for such homes in the past. What it does is officially put a ceiling on it to ensure high income earners with no assets don’t borrow more than they should.
Housing payments (including mortgage, heating costs and maintenance fees) cannot go above 39% of your income. Also known as your GDSR – Gross Debt Service Ratio. My Own Advisor had a post on it.
Total debts (mortgage, car loan, credit cards and other loans) can’t exceed 44% of your income. Also know as your TDSR – Total Debt Service Ratio.

For my posts on mortgages, see my Mortgage page on the menu bar.

Worthy Readings

Some weekend reading to share …

Boomer & Echo with ‘Building Your Retirement Income Plan‘
Beating The Index with ‘Shoreline Energy: Dividend Sustainability Analysis‘
Canadian Finance Blog with ’Emergencies, Money and You‘
Dividend Ninja with ‘XBB vs. XSB‘
Dividend Monk with ‘Two Investing Mistakes to Avoid, and Four Dividend Stocks to Look Into‘
Freedom Thirty Five with ‘Financial Lessons from Ben Franklin’
My Own Advisor with ’History repeats…some ETFs seem like Mutual Funds to me…’
Simply Investing with ‘Are You An Investor Or Speculator?‘
The Loonie Bin with ‘Welcome IGM Financial’
Young & Thrifty with ‘Financing Your Home Purchase‘

Also featured in the following carnivals

The Carnival of Financial Camaraderie #37
Yakezie Carnival – Arachnophobia Edition
Carnival of MoneyPros
Carnival of Retirement
Canadian Personal Finance – FOURTH EDITION
Canadian Personal Finance – FIFTH EDITION (HAS SUMMER ARRIVED?)

Have a nice weekend & don’t forget to vote for me @ Top Canadian Investing Blog!

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Liquid

June 24, 2012 at 1:12 pm · Reply

Thanks for the mention I’m personally not a big fan of the new mortgage rules, but I understand why the Flaherty thought it was necessary .

Amanda

June 24, 2012 at 2:51 pm · Reply

I love the new mortgage rules personally.

I think 30 year to 25 year amortization will just force people to spend a little less on their house (which is probably a good thing). Same goes for the tightening up of the GDSR and TDSR ratios.

When my husband and I went to buy a house a few years ago they said we could afford max about a $350,000 mortgage and pointed us in the direction of $350,000 houses.

I think most people have the same thought, they are told the maximum they can afford and they start looking in that price range.

It just seems to me that they are encouraging people to get into as much mortgage debt as possible, which is even more disturbing if you don’t have a large down payment.

I have friends that say they are looking for a house and when you ask them what price range they are looking for they say, whatever the bank tells us we can borrow.

I understand mortgage money is really cheap right now and it is tempting but I really wonder what will happen to people when the renewal date comes up and you find out that in the first few years you haven’t paid that much off of your principle and here is what your new payment is.

We did buy a house ($108,000) and took it out over 60 payments and its almost paid off. Maybe we would have been better off taking out a $350,000 mortgage and living a little “larger”

I guess we will never know, part of security for me personally is having no mortgage but I understand not everyone thinks that way.

Just my opinion

The Passive Income Earner

June 24, 2012 at 4:34 pm · Reply

@Amanda

I totally agree with you. I never spent the total amount I could borrow but rather spend what I was comfortable with.