As you have probably been hearing for the last two months, on January 17th the Government of Canada announced new requirements for mortgage financing. Here is what will be coming into effect this Friday:
- The maximum amortization period for high-ratio and conventional mortgages is reduced from 35 to 30 years
- The maximum loan-to-value ratio for refinance transactions is reduced from 90% to 85% of the property value.
If you are purchasing a home, as long as you have a firm agreement of purchase and sale signed prior to March 18th and a mortgage application submitted prior March 18th, you still may be eligible to apply for a 35 year amortization. Note that the closing date need not occur prior to March 18th.
If you are refinancing a home, a credit application has to be submitted prior to March 18th in order to be eligible to refinance for up to 90% of the appraised value.
What does this mean for Toronto home buyers? For the approximately 30% of buyers who have been choosing 35-year amortizations in recent years, it means either higher monthly payments, or qualifying for a lower mortgage amount. Higher monthly payments is not such a bad thing, as this could translate into $42000 in interest savings over the life of a typical $300000 4% mortgage. However, qualifying for a lower mortgage amount will be problematic for many first-time homebuyers who already find it challenging to qualify for the $400-500,000 price tag associated with entry-level homes in many Toronto neighbourhoods.