New 2011 Mortgage Rules and Real Estate in Vancouver with Mike Stewart & Jessi Johnson Part 1 of 3 Amortization!

The New 2011 Department of Finance Mortgage Rule Changes and Real Estate in Vancouver

Canada’s Department of Finance, which oversees and regulates Canada’s mortgage market which has a huge impact on Real Estate in Vancouver has enacted a new series of measures to cool the property market across Canada. The changes announced on January 17, 2011 are designed to allow the government to cool the Real Estate Market without affecting the overall economy by raising the Bank of Canada’s Prime Rate.

Call in the Expert!

As I am Realtor and not a Mortgage Broker, so I called in the expert to answer my questions on the new rules. Jessi Johnson, a Vancouver Mortgage Broker was kind enough to meet with me and explain the changes in detail.

Since there was sooo much detail, we broke up the discussion on the New 2011 Department of Finance Mortgage Rules and its effects on Vancouver Real Estate into a three part series.  In part one of the series we are going to talk about the changes to maximum amortization.

Shortened Amortization for High Ratio Mortgages?

Yes! For mortgages were a Buyer is putting less than 20% down (ie High Ratio Mortgage, high mortgage value compared to property value), the new rules shorten the maximum amortization from 35 years to 30 years. But keep in mind! This is only for high ratio mortgages that are insured by CMHC! Please note!

If you are putting more than 20% down you can still get a 35 or 40 year amortization!

How can this effect Real Estate in Vancouver?

Shortened amortizations may effect Vancouver’s real estate market by making it more difficult for first time home buyers and others with a low downpayment relying on the lower payments that come with the longer amortizations to get their first mortgage. The shortened amortizations effectively reduce the amount that Buyers can borrow because they have to pay more money back faster with the shortened amortization. This will make the Vancouver real estate market more stable, but it could make real estate less affordable in Vancouver.

This could cause a reduction in demand in the real estate market in Vancouver that. Will this cause prices to go down? I’d love to hear your thoughts!

Check out Episode 2 of 3 of the 2011 Canadian Mortgage Rule Changes Refinancing!

First Time Home Buyer? *** You NEED to check out these VIDEOS with Lots of Advice for First Time Home Buyers! ***

I’d love to hear your thoughts on this in the form of a comment down below!

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  Comments: 16


  1. Hi Mike,

    I should add a point of clarification to “If you are putting more than 20% down you can still get a 35 or 40 year amortization!” For now this is true but we have been hearing from the large banks that they are likely to change their internal policies to reflect the change to 30 year amortization just like they did when they reduced it to 35 years from 40 in the past. However they will not all do it at the same time so it will be important to talk to brokers as to where you may place your mortgage if this is going to be important to a clients decision making. Nice post!


  2. Hi Chad,

    Good to hear from you and thank you for commenting!

    Good to know!

    How’s biz?

    M


  3. The new amortization rules will push prices lower, which for first time buyers is a good thing. High house prices really only benefit those at the end of the home ownership life cycle. Everyone else is just sucked into high monthly mortgage payments and high debt to income ratios.


  4. Hi KWL,

    Good to hear from you and thank you very much for taking the time to comment!

    I am not sure I agree with you that the new amortization rules will push prices lower.

    At present the market is very active and there is a lot of demand. Prices seem to be rising and none of the buyers I am working with or come in contact with are looking to move before the changes come into effect.

    Keep in mind that the shortened amortizations are only for high ratio mortgages (ie those putting 20% or less down) and for me at least, a very small portion of my business involves high ratio mortgages.

    Canada’s, BC’s, and Vancouver’s economies are doing very well and this could counter act the effects of the new mortgage rules and cause prices to remain stable or continue to increase.

    I am not convinced these changes alone will cause prices to fall.

    What are your thoughts?


  5. C’mon Mike.

    Your video above clearly shows that shorter amortizations reduce monthly payment affordability.

    All other things being equal, it will have the impact of taking some buyers out of the market, thus reducing demand and with it prices. That being said, you can’t discount the madness of crowds, so I don’t know if it will have an immediate impact. Until then, I’ll just keep on happily renting with cash on hand.

    You’re trying to say that 2+2 may or may not equal 4.


  6. Hi CashedOut,

    Good to hear from you and thank you for commenting.

    I don’t think you understood the argument I made. Let me repeat more clearly.

    According to several articles in the Globe, Canada’s economy is doing very well:

    http://www.theglobeandmail.com/report-on-business/economy/strong-loonie-jobless-rate-keep-inflation-in-check/article1912636/

    http://www.theglobeandmail.com/report-on-business/banking-on-a-business-led-recovery/article1914606/

    Since the real estate market in Vancouver is highly influenced by the overall economy and the overall economy is doing so well, this may have the effect of negating the changes the Department of Finance has brought in.

    This is my opinion, its not simple mathematics, but rather pure speculation on what may or may not happen.

    Nobody can be sure of what will happen going forward. I would be VERY wary of anyone who tells you they can accurately predict the future.

    Would you make the largest financial decision in your life based on the opinions of a fortune teller or an anonymous blogger? I sincerely hope not.

    Contrary to your assertion, the real estate market in Vancouver is not a simple beast that is easily controlled or understood with basic mathematics.

    The Vancouver real estate market is also a beast that is brutal to those who bet against it. Case in point would be all those in the past, who like you now, cashed out in the past.

    PS I encourage and am open to posting comments that I disagree with, BUT personal attacks will not be tolerated or posted.


  7. Yet, BC lost 9100 jobs in January and has an unemployment rate of 8.2%. Plus, BC has a debt to income ratio of 160.5 according to the TD Bank. I wouldn’t call that a rosy economic picture in the Province would you Mike?


  8. Hi KWL,

    Good to hear from you and thank you for commenting.

    Prices in the Vancouver Real Estate market are rising right now.

    Have a look at the recent REBGV Stats for more info:

    http://www.mikestewart.ca/blog/category/real-estate-board-of-greater-vancouver-rebgv-monthly-sales-statistics/

    Real Estate Prices in Vancouver are rising because there is demand in the economy because the economy is improving.

    The Department of Finance changed the lending rules because they are concerned that the real estate market is getting too hot.

    The Bank of Canada can’t raise rates to cool the market because it could slow the entire economy and push up the Canadian Dollar, which would be bad for Canadian exporters.

    The low rates are heating up the overall economy which is coming out of a recession, thus further increasing demand for real estate.

    Question for you Ken:

    Why do you think the Bank of Canada raised rates over the last year and the Dept of Finance tightened the lending rules?


  9. it is now may 10 and the prices in real estate are definitely on a steady downfall if anyone has been paying attention to the market in the past 6 months. although these falls tend to be exclusively in the condo market and not so much in the detached homes market. in fact detached homes are starting to have a higher demand thus those prices are beginning to raise. the condo market on the other hand is quite soft and the prices are reflecting this.


  10. Hi Sean,

    Good to hear from you and thank you for taking the time to comment.

    Single family homes in the West Side of Vancouver and Richmond are on fire right now, but I haven’t seen any evidence that condo prices have been going down over the last 6 months.

    Where did you read that prices for condos in Vancouver have been going down for the last 6 months?

    If you’re interested in having a look at the Real Estate Board of Greater Vancouver Stats I have all the stats for the last year or so here.

    What are your thoughts?


  11. Hi Mike,

    Thanks for the sharp reply.

    I’m more specifically referring to the condo market in the Tri-city area and especially the slow down of the condo market in the past month or so. Although again to be more specific it seems to be the lower bracket condo’s under 300,000 that seem to have dropped slightly. I’m basing this trend in comparison to the condo market of the Tri-city area of last April and May and believe that this is probably due to the combination of recent tightened restrictions from lenders leading to more difficulty in obtaining financing for a lower income lower down payment purchase and also the recent increase in properties on the market with a decrease in buyers again that are eligible for financing. It seems to be a soft market and the competition among sellers also seems to be more vigilant. This vigilance among sellers can be a sign low traffic as well as a keen understanding that the rates aren’t as attractive for buyers and the attainability of financing is more difficult. I assume that this is forcing sellers to drive down their prices in order to compensate for this phenomenon. Definitely the amount of condo’s in the Tri-city area having been on the market for such a long period of time with either low traffic or potential buyer’s financing falling through should be an indication that it is a buyer’s market in this area of purchase as opposed to a sellers.

    Let me know your thoughts.


  12. Hi Sean,

    Good to hear from you and thanks for commenting.

    My business is primarily in the City of Vancouver, so I am not up to speed with the condo market in the Tri-Cities.

    I have seen some very slight softening in the market here.That said, from what I have seen its difficult to connect it to the changes in the mortgage rules.

    Jim Flaherty thinks the mortgage changes have had an effect:

    http://www.vancouversun.com/business/mortgage+rule+changes+Flaherty/4760886/story.html

    What are your thoughts?

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