January 20, 2011
Little bit of Tough Love?
by Simon Giannini
Remember the game broken telephone? Basically you sit around in a circle, and the first person whispers a sentence into the next person’s ear, who then whispers it to the next person, and so in. The game is funny because each person hears it a little differently and changes something, so that by the time it goes around the circle, the sentence that that last person hears often has nothing to do with the original sentence.
It’s only be 24 hrs since Federal Finance Minister Jim Flaherty announced changes to mortgage insurance rules, and already I have been asked questions about the new rules, some of which were completely wrong.
Here are the ACTUAL changes so far:
1. Maximum AMORTIZATION period has now been reduced to 30 years from 35 years. This is true for new mortgages, and for refinancing of existing mortgages as well.
2. If you want to REFINANCE your home, the Maximum Loan to value (LTV) has now been lowered to 85% from 90%.
3. Government insurance backing on home equity lines of credit, or HELOCs, has been removed.
The most common misconception so far is that the down payment required to purchase has changed. The down payment required on new or resale purchases did not increase. You can still buy a principle residence with as little as 5% with most banks. There were rumors that the down payment required would increase to 10% but it did not happen.
If you’re applying for a new mortgage, or refinancing, these changes will take effect on March 18 2011.
In the long run, this is a good move by the Feds. It was either this or raise rates to slow things down, and this was definitely the better way to go.
Practically speaking, the change in Amortization will have minimal impact on borrowers in the long run, and in fact, may spur a spike in buying by people trying to beat the cutoff date.
As for refinancing, a difference of 5% on the average home means that homeowners will have about $20,000 less to spend on goodness knows what. But experience tells you that only a small percentage of borrowers will be affected.
A little bit of tough love (and doesn’t hurt them in the polls as hiking the rate might have done). Either way . . . “Good job, Ottawa,” I would say. We needed that.
About the Author
Simon Giannini is a Broker with Royal LePage Signature in Toronto, Ontario. Simon is also the Author of “Everything You Wanted To Know About Real Estate But Were Afraid To Ask”, “Buy Low, Sell High”, and “Get Rid Of Your Customers”. Simon has over 25 years experience, and is a sought after speaker and trainer for the real estate and mortgage industry. You can check out his BLOG at : www.TheRealEstateCentre.com
To contact Simon: [email protected] or 416.443.0300.