Mortgage Industry Changes

Over the past few months, the Canadian mortgage industry has been significantly affected by some very important changes, caused primarily by new government regulations, but also by other important restructuring decisions. Let`s summarize what exactly happened.

On July 9th, 2012, four changes to high ratio mortgages took effect:

1. Amortization has been reduced to 25 years

2. Refinancing has been limited to 80% of the property value

3. GDS and TDS have been set  at 39% and 44% respectively

4. Properties over $1 million are no longer eligible for mortgage insurance

These government actions were expected to cool the housing market, and limit household debt. The decrease of amortization to 25 years alone is seen as the equivalent of adding roughly one percent to interest rates - that`s how much it affected the purchasing power of home buyers.

Effective September 7th, another government regulation was implemented. The percentage of the Home Equity Line of Credit on purchases and refinances was limited to 65% of the value of one`s home. Refinancing is still allowed up to 80% of the home value, but the line of credit component of it cannot exceed 65%.

In other words, if you want to get a line of credit secured by your home in first position, you are now limited to 65% of the home value. However, if you already have a mortgage that is, for example, 20% of your home, and are looking to get a line of credit as well, you will be allowed to get it up to 80% of your home value, since the line of credit portion will not exceed 65%.

The mortgage industry has also been subject to two restructuring changes.

First, the biggest news was the decision of CIBC to shut down the operations of Firstline Mortgages. Effective end-July, CIBC stopped offering discounted mortgage rates through brokers, opting instead to deal primarily through is higher-margin retail (branch) network. CIBC absorbed all existing Firstline mortgages and customers. 

Secondly, on August 29th, it was announced that ING Direct Canada was sold to Scotiabank.

Although at first sight this news may have seemed material, ING confirmed that it was business as usual, as it will continue to operate separately -as a wholly-owned subsidiary. So no real changes for ING`s customers.

If you have questions regarding these changes, please contact me directly.

### Posted on: September 30, 2012 by Tino Brelak.


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