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March 18, 2011 Department of Finance Mortgage Changes Part 2 of 3 – Reduced Refinancing Maximum Loan to Value

In January 2011, Canada’s Department of Finance announced a series of changes to the lending rules for Mortgages that will come into effect in on March 18, 2011 and April 13, 2011.

In part 1 of 3, Jessi Johnson and I discussed how the new rules shortened the maximum amortization from 35 years to 30 years for high ratio mortgages. In part 2 of this series Jessi Johnson will explain the changes to the refinancing rules.

Call in Jessi Johnson, Mortgage Specialist!

Like I always do, when I don’t know the answer, I call in the expert and this case, Jessi Johnson a Vancouver Mortgage Broker has been kind enough to meet with me and explain the new rules.

What does Loan to Value (LTV) mean?

According to Jessi’s site Loan-to-value ratio (LTV) is: 

The amount of the mortgage loan (liability) compared to the value of the property. This ratio is calculated by the lender prior to providing the loan.

For example, if you are putting 10% down on a purchase, the LTV would be 90%.

Maximum Refinance Loan to Value Reduced from 90% to 85%?

Under the present rules (pre-March 18, 2011), the maximum loan to value ratio is 90% for refinancing properties in Canada. The new Department of Finance rules which come into effect March 18, 2011, will reduce the maximum loan to value ratio to 85%, so that the maximum amount a person can borrow against a property when refinancing is 85% of its appraised market value of the property.

Why is Canada’s Department of Finance Doing This?

Canada’s Federal Government is worried that Canada’s real estate market is overheating.

Normally, The Bank of Canada would raise the Prime Rate to cool Canada’s real estate market. Unfortunately with the Canadian Dollar at record highs against the US Dollar and the overall Canadian economy still weak, The Bank of Canada does not have this luxury. This is because if The Bank of Canada increases interest rates it will push up the Canadian Dollar which could be catastrophic for Canadian exports which overwhelmingly go to the United States. Furthermore, increased interest rates could stall the Canadian economy as a whole which is still weak after the last recession.

with the Bank of Canada’s hands tied, the task of cooling Canada’s real estate market without cooling the overall economy, falls to the Department of Finance which can target the real estate market with measures like we are discussing in this series.

The Bottom Line

The bottom line is the the Department of Finance and the Government of Canada do not want Canadians to use their properties as an ATM machines to cash in on any increases in value of those properties which was one of the major contributors to the Housing Bust in the US. That said this change to the refinancing rules could make housing less affordable in Vancouver.

MAKE SURE to CHECK OUT Episode 3 on the New Rules on Home Equity Lines of Credit HELOCS!

First Time Buying a Home in Vancouver? You need to check out these Videos for First Time Buyers in Vancouver!

Selling a Condo in Vancouver? Questions? Check out out How to Sell a Condo in Vancouver!

I STRONGLY ENCOURAGE COMMENTS AND QUESTIONS BELOW!!

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!

Hi All,

I’m a huge fan of open houses. They provide a low stress low anxiety atmosphere for potential buyers to see your listing. A lot of realtors don’t like to do open houses and feel they don’t do anything to sell a property.

THEY ARE WRONG!

Watch the video and let me know your thoughts.

Have a look at 3005-111 West Georgia Street. This is the suite I mention in the video.