Brokers Concerned Mortgage Rules Too Strict

Posted by Alan Zunec on Thursday, November 22nd, 2012 at 3:18pm.

Did the Bank of Canada, in its bid to cut down on Canadian debt, make the mortgage rules a bit too strict? Some of the mortgage brokers nationwide are at least hinting at this fact, noting that the rules have the possibility of undermining what has been a sound economic recovery.

According to the Canadian Association of Accredited Mortgage Professionals, CAAMP for short, when the rules were enacted this past July, the resale housing market started to slow down. Sales from August through October this year were 8 percent lower than the same time period last year.

Changes included a reduction in the maximum amortization period from 30 to 25 years for those borrowers taking out default insurance on that mortgage, a federally backed policy. Shorter amortization means larger monthly payments, putting a mortgage out of reach for more people.

CAAMP noted that of the mortgages taken out in 2010, some 17 percent of those homeowners would not qualify by today’s standards. That includes 11 percent of homeowners, high-ratio, which would not make the cut under the current 25 year amortization restriction. There are fewer first time buyers, and that is having an effect on the resale market, which in turn affects the higher priced home markets. If a homeowner wants to move to a larger home, it’s taking longer to sell their existing home.

A recent survey by CAAMP found that most Canadians are handing their debt responsibly, keeping up with the mortgages and paying down other bills. Jim Murphy, chief executive of the organization noted that the decreasing number of first time buyers is dampening the rest of the real estate market, which was already seeing signs of a cool down.

The survey of 2,000 people also found that the amortization period had little effect on the payback of a mortgage. No matter the length, 20, 30 or even 40 years, most consumers paid their loans off early. Nearly one third of borrowers chose accelerated payments, while other just made additional payments. Almost 87 percent of homeowners have paid their loans down enough to realize home equity of 25 percent or more. Those who renewed their mortgages within the last 12 months also did well. Nearly 61 percent got a lower interest rate.

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