Tuesday, March 27, 2012
Changes to Mortgage Rules in 2012
Earlier this year the Federal government announced some changes to protect Canadian Consumers and their mortgages, including rule changes to credit cards and mortgage prepayment information.
See the official news release here (http://www.fin.gc.ca/n12/data/12-025_3-eng.asp ).
Last week a the draft of guidelines proposed by Brock Kruger from The Office of the Superintendent of Financial Institutions was released. In it you can see how the current economic state of the US is causing anxiety for lenders and economists. The proposal will affect nearly everyone, it will change how mortgages and secured lines of credit are offered and is seen by many as an unnecessary move.
The new purposed guidelines, AKA: Draft B-20 tightens mortgages and Home Equity Lines of Credit (HELOC) given out by the banks, however it does not target other lenders, leaving smaller institutions in a prime position. While media coverage has been sparse, you may find this article by Peter Foster in the National Post insightful, you can see it here (http://www.nationalpost.com/opinion/pain+RMUP/6333773/story.html).
Too see the draft please see here for the full copy (http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/sound/guidelines/b20_dft_e.pdf)
In Short Here is a Summary of Possible Changes:
1. Cash back mortgages may be gone for good. As it stands, a bank may give out a mortgage for 95% of the purchase price and then give 5% cash back, which intern may be used for down payment. As many banks already caution against such practises, it comes as no surprise that this is first on the chopping block.
2. Upon the time of renewal, property would be have to be appraised in order to determine the a value and possibility of renewal. There is cause for debate with this change. If for example, after 5 years your mortgage comes up for renewal and the Real Estate market has dropped, you could be asked to pay down your loan, or worse, the bank could call in your mortgage.
3. Changes to Home Equity Lines of Credit (HELOC). Here the changes include: The maximum loan amount would be reduced from 80% to 65% of the value of the property. This comes on the heels of the more recent change from 90 to 80% in the last few years. In addition to the new maximum, HELOS's would now be amortized, effectively ending “Interest Only Payments”. Unfortunately this action would have an immediate affect on the self-employed seeking a loan, those looking to finance a business by using their homes as collateral and individuals looking to access their equity investments.
4. Mortgages would require tighter debt servicing guidelines, which would make exception approvals by the banks a very rare thing.
Below is a video from Broker news TV:
I will be updating you as more information is released on these changes and the possible repercussions to the Edmonton Real Estate market.
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