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Alona Mercado     Tougher new mortgage rules

Are you thinking of buying a new house? Were you contemplating a debt consolidation, refinance or equity loan on your home? If you answered “yes” to any of these questions, you might want to take a closer look at the new rules announced by the Federal Minister of Finance on Monday, January 17th, 2011.

The federal government announced that they would implement three changes to the standards governing government-backed insured mortgages. In other words, they were tightening the existing mortgage rules.

The changes announced were:

  1. Amortization period – The maximum amortization period for all government-insured mortgages will decrease from 35 years to 30 years.
  2. Lowering the maximum refinancing amount to 85% of the loan-to-value ratio – Under the current rules a home owner can refinance the up to 90% of the equity in their home. Under the new rules, 85% will be the new maximum amount allowable.
  3. Withdrawal of government insurance backing on non-amortizing lines of credit secured by homes – Under the current rules, homeowners could obtain lines of credit that were secured by their homes. These lines of credit were available up to a maximum of 80% of the value of the home. Furthermore, the majority of these home equity lines of credit were non-amortizing, which essentially meant that the homeowner only made interest payments and not payments on the principal. Under the new rules, the government will no longer provide insurance on these types of loans. It will then be up to each individual bank or credit union to decide if they still wish to offer this type of loan to their customers.

What do these new changes mean to you?

If you are in the process of buying a house and have already obtained a pre-approval for your mortgage, it may be in your best interest to ask your mortgage broker to re-assess you under the new rules. Some critics of these changes have argued that the new rules will make it harder for first time home buyers to qualify for a mortgage. Others have said that these new rules are good because it will ensure that only those who are really qualified will be given mortgages and will therefore decrease the amount of mortgage foreclosures.

If you were planning to consolidate your debts by obtaining a mortgage refinancing, you too should speak to your mortgage broker again to ensure that the new rules will not affect your ability to refinance your mortgage.

For those of you who were thinking about getting a home equity line of credit, you should speak to your financial institution or mortgage broker to see if they are still offering this product.

The new rules are set to come into effect on March 18, 2011. As a consequence of these new rules, some have predicted that people might rush into buying a new home or enter into a refinancing prior to this deadline so that they can take advantage of the current rules.

If you are an individual who finds yourself in one of these scenarios, don’t rush into anything without first speaking to your financial advisor, mortgage broker or financial institution. These are the professionals who will be able to provide you with the requisite information regarding your particular situation.

The content of this article is not intended as legal advice and is for information purposes only. Should you require legal advice on a specific issue relating to the contents of this article, please seek the services of a legal professional.

Alona C. Mercado is a lawyer practising in Winnipeg with the law firm of MONK GOODWIN LLP. She was called to the Manitoba Bar in 1999 and the Ontario Bar in 2003. Her preferred areas of practice include wills and estates, committees, real estate, and immigration law. Alona can be reached at (204) 956-1060 ext. 233 or

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