Bank Of Canada mortgage rules

Mortgage reps may want rules to be made less strict

Has the pendulum now swung too far again?

Most people with knowledge of mortgages and amortization charts realize that five years ago it was likely too easy to get a mortgage – a financial commitment that was larger than one should be awarded – perhaps buying a $300,000 with no down payment with a 35-year amortization and $6,000 cashback at closing to assist with moving fees. After lawyer’s fees, land transfer tax, and appraisal charges were factored in, essentially a home owner would be financed for as much as 104% of the market value of the home. With attractive interest rates, a strong credit history and employment from the client, this scenario could work, but not forever.

Since The Bank of Canada has tightened the rules, however, it has again become quite difficult for a first-time buyer to save a physical down payment.

The Canadian Association of Accredited Mortgage Professionals is now suggesting it may be time to loosen the requirement a little as the re-sale market in real estate has slowed down, or at least it's time to analyse the situation.

Here’s the Canadian Press story:

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Re-sale real estate market needs a boost

The Canadian Press

Mon Nov 19 2012

Mortgage brokers call for look at impact of new borrowing rules

Fewer first-time buyers in the re-sale real estate market

TORONTO - Canada’s mortgage brokers say recent changes to federal rules have taken too big a bite out of an already cooling housing market and they suggest policymakers should address the needs of their industry.

The Canadian Association of Accredited Mortgage Professionals says a survey of 2,000 consumers in October, conducted on CAAMP’s behalf, suggests that first-time buyers have been hard hit by the tighter mortgage rules.

“We worry that this is having a dampening effect on what was an already cooling market and we hope policy-makers will give some thought to addressing the needs of this key sector of the market,” association president and CEO Jim Murphy said in a statement.

CAAMP chief economist Will Dunning said the smaller number of first time buyers has already affected the resale market.

“The housing resale numbers behave like a canary in the mine for us,” Dunning said. “My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole.”

Finance Minister Jim Flaherty has said the new rules were intended to deal with overpriced real-estate in certain cities and certain types of housing. He has said the tighter mortgage rules reduce the risk of buyers taking on too much debt.

Bank of Canada governor Mark Carney has also warned that Canadian personal debt levels have reached record high levels, posing a risk to the economy if consumers can’t afford to carry their debt once interest rates rise.

CAAMP is the national organization representing Canada’s mortgage industry. With over 12,250 mortgage professionals representing over 1,700 companies

Among findings of the association’s semi-annual report:

 • Since the most recent round of mortgage tightening in July, housing resale activity in the August-October period is down eight per cent compared with a year earlier.

 • About 17 per cent of high ratio mortgages funded in 2010 cannot be funded today, including 11 per cent of prospective high ratio homebuyers who can’t qualify under the new 25-year amortization rule.

Flaherty has reduced the maximum amortization for Canadian mortgages several times in recent years. Most recently, the maximum was cut from 30 years. Previous reforms included reductions in the maximum amortization period to 35 years from 40 and then to 30 years from 35.