New mortgage policies went into effect in July

The move is meant to discourage marginal buyers by raising monthly mortgage costs

As many of you have likely heard, the new mortgage policies went into effect in July.

The growing levels of debt in the average Canadian household have been a concern for some time now.

By the end of 2011 household debt to income hit a record high of 152 per cent.

Canada’s Finance Minister Jim Flaherty said “Money is cheap these days, mortgage rates are low, the banks are lending money at low rates, and some people can’t resist that temptation, so we are making it more difficult to obtain insured mortgages at low monthly payments,” Flaherty said.

The move is meant to discourage marginal buyers by raising monthly mortgage costs.

In regards to that, I wanted to highlight some of the key changes now in place.

First point I want to emphasize is these changes are applicable to government-insured, high ratio mortgages.

Amortization Period—The maximum period has been reduced from 30 years to 25 years, giving borrowers less time to repay the debt in full

Borrowers refinancing their mortgage are now limited to 80 per cent of the loan to value ratio, down from 85 per cent.

Limit the availability of government-backed insured mortgages to homes with purchase price of less then $1 million. Previously no price limit.

The federal government has also tightened the standard lenders must apply before granting a mortgage.

Limit the Gross Debt Service ration to 39 per cent and Total Debt service Ration to 44 per cent.

Some are concerned about the impact that this will have on the housing market. There are many different opinions out there.

“To neutralize the impact of the amortization rule change on mortgage payments, average home prices would need to fall about three per cent, says Sal Guatieri, senior economist of BMO Capital Markets.

He adds, “By helping to cool the market now, the changes should increase the odds of a soft—rather than hard—landing.”

It’s important Canadians remain up-to-date on rules and regulations that have a direct impact on their financial plans and overall stability.

Meanwhile, the Financial Consumer Agency of Canada (FCAC) says it has updated its website to reflect new mortgage rules (

Mortgages 101 defines the key terms that anyone planning on buying a home needs to understand, such as the down payment, amortization period and term.

It covers in some detail how interest rates, payment frequency and other fees will affect the monthly payments. Other areas covered dealing with the total cost of home ownership should also be viewed closely. This is one area some couples under budget.

If you are uncertain how these changes may impact your financial plan, speak to a professional.

Ilana Schonwetter is a Mutual Fund Investment Specialist with Credential Asset Management Inc. at the Vancity Tsawwassen Community Branch.