Buying a first home in Calgary or taking out a loan against an existing residence will be more difficult for Canadians under new rules to tighten the mortgage and lending landscape – changes that mean up to five per cent of Canadians who might be considering buying a new home will likely no longer qualify, cutting the maximum amortization period for government insured homes to 25 years from the current 30 years, and limiting how much homeowners can borrow on the value of their homes to 80 per cent from 85 per cent.
It will no longer be in the business of insuring homes that are worth more than $1 million – meaning buyers will need to put up at least a 20 per cent down payment or seek private insurance. As well, it will insist that prospective buyers have the means to afford mortgagepayments, property taxes and heating costs on their home. It will do so by setting cost ratios based on household income – a kind of affordability ratio – of 39 per cent for gross debt service and 44 per cent for total debt service. The changes go into effect July 9.
The most significant change is the reduction to the amortization period, bringing it back to the level it had stood historically before rising to as high as 40 years during the heady pre-recession days of 2006. The government said on a $350,000 mortgage with three per cent interest, it will increase monthly payments by $184 over what they would have been with a 30-year amortization. Over the lifetime of the mortgage, however, the homeowner will save $33,052 in total interest payments because the home would have been paid off five years earlier.