Changes effective March 18, 2011

CMHC was just in my office updating me on the new rule changes brought down by the Ministry of Finance for March 18, 2011.

The main thing to know is that if you have written a purchase contract prior to this date, you are still eligible for the 35 year amortization.

On a refinance, if you have a committed application with the lender, and is set to close past the March 18th date, then you're ok. So you're still allowed to refinance to 90% if needed.

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To clarify the new most important changes.

The maximum amortization for high ratio, and most like conventional (still hasn't been confirmed however, the head at CIBC told me the other day it's most likely for both) will go from 35 years to 30 years.

The maximum equity you can take out on your property for a refinance is a mere 85%. If your home is worth $400k. The most you can take is $340k

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Why I don't like these changes.

90% of my clients that have been put into a 35 year amortization do NOT need it. We use it as a strategy. Do one of two things: Keep the payments higher to whatever AM you'd like and in case something was to ever happen, you can always reduce your payments to increase your monthly cash flow.

Or you can take the extra, whatever amount, and start building your investment portfolio. At the end of the year, you should reduce your tax amount and/or receive a tax credit back which you can either reinvest or put on your mortgage as a lump sum to reduce your over amortization.


For the refinance- I don't like it as, a lot of clients that I have refinanced to 90% or 95% now or in the past, do not do it for debt reduction, they do it as they can take advantage of a lower rate and ONLY roll in their penalty to their existing balance. This doesn't allow those people to do this now which in turn is telling the client they have to pay higher and more interest. Doesn't seem fair to me.

Variable rates to stay low through 2011

Variable mortgage rates:

The Bank of Canada will hold off on increasing interest rates during the first half of 2011. This means variable mortgage rates will also remain at low levels during this time and then gradually increase from there. As the Canadian economy continues to recover, the sluggish progress in the US and the frailty of the EU, tasks the Central Bank with maintaining a tricky balancing act.

"Governor Carney and his people will be trying to thread the needle on interest rates trying to balance the rising loonie against low interest rates that encourage further consumer indebtedness", says Dr Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University.


Fixed mortgage rates:

The decreased demand for mortgages and relatively stable bond yields, leads us to believe that fixed mortgage rates will remain unchanged for the month of January. However, this outlook is susceptible to change with additional defaults in Europe or poor results on upcoming US economic indicators.

Also, ultra low interest rates for the past few years have fueled a borrowing frenzy creating concern about mounting debt levels for Canadian consumers. It wouldn't be a surprise if the government made a policy change to address the debt problem by adjusting the mortgage rules, likely spurring a change in fixed rates as well.