Death of 30-year mortgage amortization in Canada

The 30 year amortization is going to end in Canada as of July 9, 2012.

This  means:

  • payments will rise 12.5%
  • max qualifications will drop by 9%
  • and 40% of the folks who took out mortgages last year would be in different products than they chose.

Other important facts from this announcement include:

– Property appraisals are conducted by bank on-site inspection, property appraisers or automated computer analysis. Banks are required to use more than one.

– Cash back mortgages are still allowed but may not be used towards the downpayment. Buyers without 5% are not able to buy.

– The source of down payments must be verified and “gifts” must have a letter indicating that it is non-recourse with no strings attached.

– Co-signers must have a thorough credit check, provide income verification and a net worth statement. They must also be advised of legal obligations.

– HELOCS and reverse mortgages are limited to a maximum .65 LTV ratio. Anything over this amount must be an amortized loan. This will affect those buying homes in the USA using their house as

– Low credit score applicants (sub-prime) limited to .65 LTV.

– General tightening of all documentation for applicants including income verification, credit history.

Will these changes have much of an effect?

CIBC economist Benjamin Tal said these changes will have a greater impact on the market than the last round did.

The move from 35 to 30 years was very different than from 30 to 25. It’s not linear — 30 to 25 is much more significant,” he said.

Check this graphic that shows what happens locally in Victoria, BC after a major CHMC or mortgage announcement:

All these little changes might just add up to something. Which is why I am delaying buying my first home (still in condos).

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