Toronto Real Estate Mortgage Rules

We reported that qualifying for Toronto real estate financing just got a bit tighter when more new mortgage rules were announced by Canadian Finance Minister Jim Flaherty this week.

What Do These New Mortgage Rules Mean For The Toronto Real Estate Market?

The Toronto Real Estate market was predicted to see a pattern similar to 2010 this year. In 2010, the majority of home sales in Toronto took place at the beginning of the year, with most looking to take advantage of low mortgage rates and get in and out before the HST and previous batch of new mortgage rules came about. Because interest rates are currently low and should rise this summer, the general 2011 Toronto real estate outlook was that a similar mini-boom would be seen. Now with even more new mortgage rules added to the mix, it seems that this prediction is even more likely to become a reality.

Our Toronto Real Estate Team's Mortgage Amortization Chart will show you the cost differences between a 30-year and a 35-year amortization. Click for full-size version.

The new mortgage rules will come into effect on March 18th.

The new mortgage insurance rules that take effect this spring impact both existing Toronto house and condo owners and first-time real estate buyers.

The government feels that they need to try and keep Canadians from getting into excess debt levels – certainly a laudable project and a definite cause of the pain the Americans are encountering right now.  They’ve decided to do that in three ways.

For home buyers, if you have less than 20% down payment, you must take a 30-year amortization or shorter mortgage.  The longer 35-year amortizations will not be available past March 17, 2011.  The impact of this is to reduce the maximum price of Toronto houses or condos that the buyer will qualify to purchase.

As an example, let’s assume a 5% down payment and a 4% interest rate for a fixed 5-year term.  Prior to this rule a qualified buyer could obtain a mortgage up to $410,000.  Under the new rules, the buyer could only qualify for a mortgage of up to $380,000 – a $30,000 or approximately a 7.5% decline in borrowing power.

In my humble opinion, this is a good move.  Many home buyers last year suffered from ‘multiple offer anxiety’ – a social disease caused by finding a home they fell in love with, putting in an offer and then being beaten out by a multitude of other bids.  This has been known to happen sometimes several times before the buyer either won the bidding war or gave up in frustration.

I think this mortgage financing change will take the pressure off large upward price movements and perhaps lessen or eliminate multiple offers from happening.  I don’t think we’ll see price declines but certainly some degree of flattening of the price increase curve.

The next two changes really affect existing home owners.  The ability to refinance an existing mortgage was cut back from 90% of the appraised value to 85% and any lines of credit issued by banks above the 80% loan-to-value level can no longer be insured by CMHC (Canada Mortgage and Housing Corporation).

These prudent measures will ensure that home owner debt levels won’t increase to dangerous levels.

Visit our full-sized Toronto Real Estate Mortgage Qualification – 30 VS 35 Year Amortizations chart if you’d like to look a little more closely into the chart shown on the right.

Are you a Toronto home buyer looking for help buying your first home or curious about how these new mortgage rules will affect your home buying plans? Our Toronto real estate team would be happy to help. Contact us today!

Toronto Real Estate Predictions For The New Mortgage Rules is a post from: Toronto Real Estate | Toronto MLS Listings | Toronto Homes For Sale