Economic Update


The Canadian Federal Government decides to take proactive measures to cool off mortgage lending.

Firstly, Finance Minister Jim Flaherty announced four changes to mortgage insurance rules in an attempt to cool what he feels is an overheating housing market.

  • The maximum amortization period will be reduced from 30 years to 25 years
  • The maximum amount of equity homeowners can take out of their homes when refinancing is also being reduced to 80% from 85%.
  • The maximum gross debt service ratio used to calculate the maximum loan amount you can borrow will be fixed at 39% and the maximum total debt service ratio at 44%.
  • Finally, the availability of insured mortgages will be limited to homes with a purchase price of less than $1 million.

Secondly, the Office of the Superintendent of Financial Institutions (OSFI) also released their final draft of revised mortgage underwriting guidelines for federally regulated financial institutions which includes all major Banks and Trust companies.  The proposed changes were put out sooner than expected and cover four main areas.

  • Home Equity Line of Credits (HELOC);
  • Qualifying Rates: Interest rates lenders use to qualify variable rate mortgages or fixed terms under five years;
  • Down Payments;
  • Income confirmation for self-employed borrowers

Federally regulated lenders have until “no later than fiscal year-end 2012” to comply with these guidelines.  That ranges from October 31, 2012 for major banks to March 31, 2013 for other institutions.

To find out more about these new rules or if you are not sure how they might affect your mortgage, contact your mortgage broker.