The Government of Canada set the barriers for home ownership a little higher last week, with the announcement of several changes to mortgage rules that could impact low-income families and first-time buyers in the short-term, but will reduce total costs over the long term.
The biggest change is the decision to reduce the amortization period, when the mortgage principal and interest is fully paid off, from 30 years to 25 years. That announcement came less than a year-and-a-half after government reduced the amortization period for insured mortgages from 35 years to 30.
The changes come into effect on July 9.
From the federal government's perspective, the change will save Canadians money in the long term.
Finance Minister Jim Flaherty used an example of a home valued at $350,000. "The reductions to the maximum period since (it was 35 years in) 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage."
However, the flipside of forcing people to pay off mortgages faster is the fact that mortgage payments go up as well, which could impact lower income families already struggling to make ends meet.
Additionally, some Canadians will need to earn more to even qualify for a mortgage in the first place, based on their ability to make higher payments.
Using the minister's figure of $350,000, the average monthly payment (at three per cent mortgage rates) will go up around $184. It works out to just under $50 more per month for every $100,000 in value of a mortgage.
"If you're on the cutting edge in terms of mortgage approvals, you're going to be looking at another $2,500 a year to own a house," said Pat Kelly, owner of Whistler Real Estate Company.
Kelly doesn't expect the rule changes to have much of an impact on most of Whistler's real estate market. Homes over $1 million will now have to pay 20 per cent of the purchase price down, but people buying in that range typically have the equity to do that. As well, second homeowners don't qualify for CMHC insurance.
"A large part of the condo and single-family market is not an issue," said Kelly. "But this will probably have some impacts in the WHA (Whistler Housing Authority) in terms of qualifying. For people just starting out they've made it more challenging. How many people that is, I don't know."
It's also unclear what it means for homeowners that will be refinancing homes after July 11 and currently hold 30 or 35-year mortgages. Before March 2011, homeowners could refinance up to 90 per cent of the value of their homes, then it was reduced to 85 per cent. Under the new rules coming into effect July 9, the ratio has been cut again to 80 per cent.
"If a homeowner only has 10 or 15 per cent equity in their homes and their mortgage needs refinancing, are they going to have to pay down the difference?" asked Kelly. "We have someone coming in next week to explain the new rules in detail, but that's what it sounds like."
Pique attempted to clarify refinancing terms by contacting the CMHC, but did not receive a reply at press time.
The formulas for how much debt a homebuyer can carry to qualify for a mortgage have also changed. Those formulas measure income and debt to determine how much someone can safely borrow for a mortgage, and as a result some buyers will qualify for less money than before.
Doug Mildenberger, owner and broker at Garibaldi Mortgage, said that they have been providing locals with 30-year mortgages and are concerned what the changes will mean for lower-income clients.
"If you can put 20 per cent down or more it doesn't affect you, but it does affect people that are already scraping by to get a downpayment," he said. "They can still get financing, but it does limit the purchase price because their income qualifications go up. You need a higher income to qualify for the higher payment you'll have with a 25-year amortization."
Mildenberger said the decision to reduce the amortization period and bring in stiffer qualification criteria likely has to do with concerns about growing consumer debt in Canada. In that sense, mortgages have been unfairly targetted.
"There is a lot of talk about consumer debt being too high, but it's too high because they're carrying credit cards with high interest rates at 19 per cent, or they're paying $400 a month to lease a vehicle," he said. "Those are things that really add up in consumer debt, but the government's done nothing to stop banks from saying, 'hey, your credit card debt is really close to your balance, so we're going to increase your credit limit — and we're going to do it automatically without you even applying for it.'"
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