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The new Canadian mortgage rules are now official – amortizations are getting shorter and it’s about to get harder to get financing. Click here if you aren’t yet up to speed on the Mortgage Changes.
It’s been an interesting morning: Buyers wondering if they can still afford to buy, others wanting to buy before the rules take effect July 9th, home owners wondering what will happen when they renew their mortgage and still others wondering if it’s time to sell. I couldn’t have asked for better blog material.
How do today’s announcements affect home owners and Sellers?
Rule Change #1 – Amortizations reduced to 25 years, from 30 years
This will essentially translate to an extra $159 a month in mortgage payment on a $300K mortgage at 3%. The good news is that it will mean paying less interest over time…but it does mean that everybody’s budget just came down. If a Buyer was looking at spending $1,500 a month in mortgage payment, that now buys less house.
If you currently have a mortgage at 25, 30 or 40 years, you will still be able to renew your mortgage with the same lender at the same original amortization – when your mortgage comes for renewal, you won’t suddenly need to make payments over 25 years instead of the 35 years you have remaining on your mortgage. Of course getting a brand new mortgage will mean having your payments amortized over 25 years.
Rule Change #2 – Insured mortgages no longer permitted on properties over $1 million
True, this will mean that Buyers with less than a 20% down payment will have to focus in the under $1 million market, so if your house is worth more than $1 million, there will be fewer Buyers for your house. BUT – most of the Buyers in that price bracket have bigger downpayments than first time buyers in the $300K range – AND the Buyer with 5% down usually isn’t your best Buyer on a $1 million+ property anyhow.
Rule Change #3 – Lowered Gross Debt service and Total Debt Service Ratios
This probably won’t affect demand much, as most lenders were already applying stricter standards to the ratios they use to determine how much a Buyer can afford.
Rule Change #4 – Home Owners can only refinance up to 80% of the appraised value of their house
If you’re looking to take equity out of your house to renovate or buy another property, things just got harder. I predict this will be good for all homeowners in the long run – the last thing anyone wants is a US style real estate crash.
So…if you were thinking of selling, should you sell now?
- The market will be interesting until July 9th – Sellers trying to get out and Buyers trying to get in. If the e-mails I got this morning are any indication, I suspect the new Buyers and Sellers will cancel each other out. More supply on the market from Sellers afraid of not being able to sell, and more demand from Buyers afraid of not being able to get into the Toronto real estate market. I personally wouldn’t panic and put your home up for sale solely because of the changes. Markets are driven up and down by people’s emotional reactions – and usually, it’s best to take a deep breath and NOT do what everyone else is doing.
- If you do decide to list now, recognize that the weather is a critical factor in real estate – many Buyers are hanging out in pools right now, not going to open houses. Usually, the best time to sell is in Feb/March, followed closely by September.
- The decision of whether or not you should sell needs to take into account the usual factors – your financial situation, your personal living situation, the other reasons you’re looking at selling. You still need a roof over your head. It costs money to sell.