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In an effort to cool Canada’s housing market (read: Toronto and Vancouver), the government announced last night the end of the 30 year mortgage – just a few years since they parted ways with the 35 year mortgage (and the fourth intervention in 4 years).

Also expected to be announced at a news conference today:

  • re-financing of current mortgages capped at 80% of the appraised property value (vs 85% currently)
  • no insured mortgages for properties worth over $1 million (meaning you need at least 20% down payment)

How will this affect Toronto Buyers and Sellers? Here’s what we think:

  • Some Buyers may have to wait longer to buy  if they were depending on the 30 year mortgage to comfortably afford their new house or condo…for example, a $300,000 mortgage at a 3% interest rate would have been $1,286 per month at a 30 year amortization;  now it’s $1,445. But really, if a Buyer was depending on amortization to afford their new home,  it was probably always a good idea to keep saving a bigger downpayment and wait to buy.
  • Some investors will have a harder time making the math work on their investment – breaking even (or ideally making a monthly profit)  is critical for investors – you can read all about it in our blog: How to Make Money in Real Estate
  • It’s always blown my mind that you could buy a $1 million property with only 5% down. To me, this change is a no brainer. Not sure how many people it will affect – our million dollar Buyers have always had sizeable down payments.
  • We’ve always said that you haven’t ‘made’ any money on your house or condo until you sell it – just because your neighbourhood got $100K more than you paid 6 years ago, unless you’re ready to sell, you aren’t $100K richer. The re-financing game has always scared us a bit – and maxing out at 80% of the appraised value makes sense to me. (wasn’t this one of the contributing factors to the US melt-down?)

Realistically, we all know the government wants to put an end to the 10%+ annual price increases that some markets (read: Toronto, Vancouver) have been experiencing. We’ve always said it wasn’t sustainable. And with the world economy where it’s at, raising interest rates isn’t much of an option. I think the new mortgage rules will have the desired effect – bring our real estate markets more in line with the rest of the economy

Here is our analysis of what the mortgage changes mean for Sellers & Homeowners

Here is our analysis of what the mortgage changes mean for Buyers and Investors

 

So…what do you think of the new mortgage changes? We’d love to hear your opinion!

UPDATE: The new changes to the mortgage rules were confirmed at a press conference this morning. Changes take effect July 9, 2012 – and they announced one more change: maximum gross debt service ratio will be fixed at 39 per cent and the maximum total debt service ratio at 44 per cent.

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