Home Buyers Beware

Many people do not know, but there are changes happening in the mortgage business and the confusion is just beginning.  Taking effect March 18^th, 2011:

1. The longest amortization you will be allowed to use if you purchase after this date will be 30 years.

Why is this important?  Well if you were pre-approved some time ago, your application may have used 35 year amortization.   With the new change to 30 years, now you may not qualify for the same amount, and your payment will also increase.  See your broker agent or bank to be sure. 

2. If refinancing to pay off debts, do renovations, or invest some money, the maximum amount allowed, less your current mortgage is 85%.  This is a drop from 90%.  If approved before March 18, 2011, you can still use 90%.  If you have not applied for a refinance yet but are planning to soon,  call me ASAP.

I don’t represent the lender or the bank, I represent you!

Please don't hesistate to call if you have questions.

Bryan – 519-426-9842

Response to the New Rules

There has been a little confusion in regards to one of the responses about the upcoming rule changes because banks are discussing the savings one will have because of the shorter amortization period. (30 vs. 35 years).  But how is that possible?  Simply put, if you buy a house and amortize it over 30 vs. 35 years, naturally you are going to save interest because it takes 5 years less to pay for the house.  Don't be so concerned with the amount of weekly/biweekly/monthy payments, but with the concept of less interest.  Paying for a shorter period of time is just better.  A broker can always figure out your savings for you at the time of purchase.

The other change involving refinancing your current mortgage has also caused a lot of confusion.  It is better to return to the fundamentals of refinancing to explain.  Using the new change, here is an example:

A home worth 200K has a current mortgage balance of 120K.  According to the new rules, you can refinance up to 85% of the 200K, which is 170K.  Thus, you would have roughly 50K in equity.  When considering a refinance, you need to use your current mortgage balance and multiply the current value by 85% to see if you can refinance.  Please note, if you are trying to get out of the mortgage early you must remember there is a penalty and that will use up some of your equity.

Don’t forget the changes are taking place March 18^th, 2011, and that we are here to help expedite the process if you need us: 519-426-9842.

Changes to Mortgage Rules

Announced January 17, 2011:

The federal Finance Minister announced several changes to mortgages, effective March 18th, 2011.  There are three key changes the average Canadian should be aware of:

1.  When determining the amount of mortgage you qualify for, you can only amortize over 30 years.  Until recently, this number was 35.  

For example, a house purchase for $200,000.00 less 5% ($10,000.00) and amortized over 35 years would establish a monthly payment of $862.75.  Now, using 30 years, the monthly payment would be $929.03.

Also, the shorter the amortization, the less you will be able to afford.  Using a $200,000.00 purchase at 35 years may only allow you to buy a place for $195, 000.00 when the new rule comes into effect.  Be sure to check if buying after March 18, 2011.

2. When refinancing, especially debt, you can only use 85% of value. 

3. If you want to renew a line of credit against your home, you can only finance 80%.  Formerly, you could receive up to 90%.