The Canadian Finance Ministry announced yesterday that 40 year mortgages will no longer be allowed if the mortgage is CHMC backed. In essence;
- Mortgages with less than 20% down payment can not be obtained for longer than 35 years and must be insured.
- A minimum of 5% down payment is mandatory on all CHMC backed mortgages.
- New rules will require and enforce a minimum credit worthiness before a mortgage application is granted.
- To service the debt a maximum of 45% of gross income will be allowed.
Even though a 35 year mortgage, in my opinion, is still too long but I think given the additional safeguards announced yesterday new home owners will have a fighting chance of staying afloat. This will also ensure that the Canadian housing market stays healthy.
To me this means my house's value will not increase at the same rate as it did in the past few years. Clamping down on crazy financing schemes means less liquidity, less buyers and lower house value increases but my house will have a value and will not face the depreciation being experienced in the USA as a result of the sub-prime mortgage mess.
This brings a reasonable conclusion to this topic which I covered in two previous posts ( May 13 and June 16 ).
