Changes in the Mortgage Industry
The Following is written by a guest blogger, a Mortgage B roker by the name of David Dyck. He works at Dominion Lending Centres. I was already aware of the recent changes of mortgage law but I believe in the addage “Write what you know.” which is why I am glad to add a broader perspective to this blog. I am hoping that David will continue to share useful mortgage info with us.
The Finance Minister of Canada has made a couple changes to the way banks can lend mortgage money in order to slow down some of the consumer spending we as Canadians love to indulge in. The average house hold credit debt in Canada is nearly $30,000 .00 per home which shows we are not shy when getting into debt for the things we want is a possibility. I believe the new lending practices are a means by which to make consumers choose between home ownership or keeping up with the neighbours on credit card spending because, with the new rules in regard to mortgages, payments will be higher and potential investment capital will be lower.
Rule #1: Refinancing amounts will drop from 90% Loan to Value to 85% Loan to value which means that when the time comes that you would like to use your equity for investments/pleasure there will be less capital to use potentially putting some people in a tough spot.(For those of you unaware how Loan to Value ratios work lets say I wanted to borrow $1000 at a 90% LTV the bank would give me $900 and I would have to come up with the remaining $100 myself)
Rule #2: Amortization periods will be decreased from 35 years to 30 years thus shorting the amount of time given to pay off the loan as well as increasing monthly payments .
These rules which are to be law as of March 18 2011 are intended to tighten the reigns on potential new home owners and make them think twice before going and buying an 60 inch tv or other frivolous items. The government wants to keep our mortgage default as low as possible thus making Canada a respected player in the world economy based on our excellent lending and banking practices. In short if a new home is on your horizon an indepth look at your personal finance and plans for the future is completely necessary.