(PRWEB) June 29, 2012
Since the beginning of this year, the news of new and tighter mortgage rules has been calculating the press. Despite great opposition from CAAMP and mortgage broker associations around Canada, Finance Minister Jim Flaherty has finally made the official announcement to change the rules for the fourth time since 2008. According to officials, the decision has been termed as an attempt to prevent a housing bubble.
While many federal and financial institutions are backing the new policies, Syndicate Mortgages, one of Canada’s leading mortgage brokerage-firms, sheds light on the possible negative effects of the decision. Syndicate Mortgages is efficiently voicing the opinion of Canada’s and home buyers i.e. the people who are going to be affected by the consequences.
A few of the major changes in rules include shortening of the maximum amortization period from 30 to 25 years. This will significantly increase the monthly mortgage payments. Monthly mortgage payments will increase 11.5 % at a mortgage rate of 3.5 % and 9 % at 5% mortgage rate.
The spokesperson for Syndicate Mortgages estimated the difference these new rates will create. He said, “The figures are tricky but one thing is for sure. The new rules will restrict homeowners and buyers ability to pay their mortgage. Even for a lower mortgage rate, the required household income would rise up to 11.5 percent. In another words, this is equivalent to an increase of 0.9% in the mortgage rates. “
According to the spokesperson, the government, in an attempt to prevent people from borrowing more than the value of their homes, has also put great burden on home-buyers. This will limit their ability to buy a home and eventually lead to an unwanted increase in rent.
Another major change in the new policy that will be effective from July 9, 2012 is lowering of the maximum refinancing amount from 85 percent to 80 percent of the loan-to value ratio. Moreover, the Gross Debt Service Ratio and the Total Debt Service Ratio will also be limited to 39 and 44 percent respectively.
While these are only a few major changes included in the new policy, these are enough to forecast the cooling down of Canada’s real estate and mortgage industry. According to Flaherty, this is what they expect to see. However, Syndicate Mortgages cites the role of Canada’s housing industry in strengthening the country’s economy in the first place.
“Our industry has been red hot and interest rates were at a historic low. What policy makers fail to see is the fact that it was one of the major driving forces behind Canada’s relatively stronger and stable economy as compared to other countries. Damping down this industry will also calm down the GDP growth,” adds the spokesperson.
The spokesperson substantiated this claim with the fact that the real estate and housing industry has contributed in creating jobs and bringing investment. There thousands of people earning their living through this industry. A housing slump will escalate the rate of unemployment in the country. This will eventually pose a serious threat to the economy.
The final change introduced with the new policies is a $ 1 million limit on government backed insured mortgages. This amendment is expected to make the least impact but it will make it hard for buyers to buy high priced property without a handsome down payment. “The one million limit is not such a bad decision but the truth is it may only make more sense in some of the markets where the housing prices are rising. While in other markets the cap must be much lower,” adds the spokesperson.