Demystifying the Changes to Mortgage Rules
After speaking with clients, it’s apparent that there are many
misunderstandings that persist concerning the mortgage policy changes that have
taken effect this year. A BMO Bank of Montreal poll conducted earlier this year
by Pollara reflects this, with nearly half (49%) of Canadians indicating they
are unfamiliar with the new measures being put in place.
I’ve had clients incorrectly believe that:
·
they now need to have a 20 per
cent down payment to purchase a home
·
they are no longer able to refinance their current home
·
if they were in a mortgage with
an amortization over 30 years their mortgage would need to be renegotiated to
25 years
All of these beliefs are false. There have, however, been a few
changes in 2012 to mortgage lending policy that are currently in effect. They
are:
·
the maximum amount that can be
borrowed when refinancing a mortgage was reduced to 80 % from the previous 85 %
value of a home
·
The maximum amortization from
insured mortgages drops to 25 years from 30 years — giving borrowers less time
to repay the debt in full.
·
The ban of mortgage insurance on properties over $1 million.
·
New Home Equity Revolving Loans
are approved to a maximum of 65% of the value of the home.
So if you currently have a mortgage with an amortization longer
than 30 years, you can rest soundly as the bank is not going to have you
increase payments to renegotiate it to 25 years. You should be aware, though, that
if you apply to refinance at a later date, your new application will be subject
to these new mortgage rules. However, if your mortgage is coming up for renewal
and you are not looking to increase your mortgage amount; you will also not be
affected by this change in amortization period.
If
you are purchasing a home as your primary residence, you can do so with as
little as a 5% down payment, but you would be limited to a 25 year
amortization. The minimum down payment to avoid mortgage insurance premiums is
20%, and in this scenario you can still choose a 30 year amortization.
However,
the benefits of a shorter mortgage means you pay less in interest, saving
thousands of dollars in interest costs over the life of your mortgage – meaning
you can have a mortgage burning party sooner and allowing you to get a head
start on other financial goals such as saving for retirement.
A
shorter amortization period also allows homeowners to begin building home
equity sooner. This equity can then be used to finance other important life
events, such as post-secondary education for your children, a family vacation
property or renovation and expansion of your current home.
For
all you’re home financing questions and for advice about your particular
scenario please do not hesitate to contact me, Francine Gomes, BMO Mobile
Mortgage Specialist, locally serving the West Kootenays, at 1-877-680-9225. As
a mobile mortgage specialist I’m able to meet you when and where it’s
convenient for you. Mortgage expertise at your doorstep 24/7.
Francine Gomes
Mortgage Specialist
BMO Bank of Montreal
West Kootenays
Office: 250-365-8919
Mortgage Specialist
BMO Bank of Montreal
West Kootenays
Office: 250-365-8919
Fax:
250-365-8921
Cell: 250-513-0042
or 1-877-680-9225
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