The big news of the day is that the Department of Finance has put further restrictions on mortgage lending. Jim Flaherty (Finance Minister) announced today that effective July 9th 2012 they will be:
1. Reducing max amortizations to 25 years from 30 years on high-ratio insured mortgages (any mortgage with less than 20% down payment). 20 % down (conventional mortgages) can still get up to 35 years amortization.
2. Eliminating lending on high-ratio mortgages over $1 million.
3. Reducing Loan to Value to 80% from 85% on refinances.
4. Capping Gross Debt Services (GDS) ratio at 39% and Total Debt Service (TDS) ratio at 44%.
This follows further restrictions last year requiring investors to put down 20% and reducing the Amortization from 35 to 30 years.
It appears the Canadian Finance Department has fears of a financial collapse from over lending so they are making it more difficult to get a loan and more difficult to access the equity in your property to protect out stability.
The pro is that in the long run this will keep us from a US like over-lending crisis with defaulting and forclosures causing a massive decline in prices.
The con is that in the short run our market will soften as investors will find it harder to come up with downpayments, they will be hard pressed to have rents cover expenses with shorter amortizations, and less keen to invest in Real Estate if equity is less liquid for refinancing to invest in other things.
The big question is what will happen to interest rates, because is they jump our market will cool drastically. But then with tougher lending laws introduced today and still a weak national and very bad international economy perhaps variable rates will stay low. With so many variables involved it is really impossible to predict.
It seems the experts are predicting 18 months of flat rates and then an increase, but they have been saying that since I started in Real Estate 4 years ago.
The best advice is to consult an Mortgage Advisor and make sure you are aware if the implications of these changes in our lending practices and the effect they may have on your Real Estate holdings, purchases, and sales.