Canadian Mortgage Rules Are Changing

Jim Flaherty, Canada’s Finance Minister, announced  changes to mortgage lending rules today which will have an effect on the Canadian real estate market. 

In announcing the changes, Mr. Flaherty lauded Canada’s well-regulated housing industry, and noted that the real estate market has been an important strength in the Canadian economy. Canada’s relatively conservative banking rules have allowed the country to avoid the mistakes of other nations and have helped protect Canadians from the worst of the recent global recession….

There are three basic changes under the new rules, which take effect on March 18, 2011:

1.)  the maximum amortization period for new government-backed insured mortgages will be reduced from 35 to 30 years.

2.) the maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85% per cent from the current 90% per cent.

3.) The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit. (not in force until April 18, 2011)

These changes will take effect on March 18, 2011. Overall this is not bad compared to what had been speculated. The one which will have the greatest effect is the lower amortization period, as it reduces borrowing power by the purchaser.

If you are a buyer, or are considering refinancing your home, it is probably a good idea to speak to your mortgage professional asap.

What Are 50/50 Mortgages?

There’s something new on the Canadian mortgage scene – hybrid mortgages – also known as 50/50 mortgages – they include an equal mix of fixed-rate and variable-rate components within a single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility and lower cost of a variable rate.

Although in recent times, most mortgage experts have considered a variable rate mortgage as the obvious choice to save consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be something to consider.

In a nutshell, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a  50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

• Would normally go fully variable but are afraid prime rate is at its bottom
• Aren’t comfortable being locked into a fully fixed rate
• Can’t decide between a fixed or variable mortgage

Some features of the 50/50 mortgage include:

• 20% annual lump-sum pre-payment privileges
• 20% annual payment increase ability 
• Portability (the option to transfer your existing loan amount to a new property without penalty)

This information is courtesy of Sarah Makhomet,  my good friend and expert mortgage broker at Dominion Lending. As always, if you have questions about the 50/50 mortgage product and whether it’s right for you, or any other mortgage-related questions, we welcome your comments!