Jim Flaherty, Federal Finance Minister, announced some significant changes coming March 18, 2011 and April 18, 2011 [HELOC] to existing mortgage lending rules:
- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
Edmonton home buyers take note particularly of the reduced amortization period. Take the following example as a guide. A $150,000 mortgage at 4% interest amortized over 35 years requires a monthly payment of $661.20; spread over a 30 year period, the payment becomes $713.28. In other words, the payment increases by $52.08 per month. Reducing the payment period to 25 years [and saving yourself ahuge amount of interest payments] would require a monthly payment of $789.03.
If you are thinking of buying this year and you would like to take advantage of the lower payment structure, ACT NOW!