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    « Effects of Interest Rate Hike May Be Overestimated | Main | Mattamy Registration for North Oakville Now Available »
    Monday
    Jan172011

    How the New Lending Rules Impact You and the Oakville Market

     

    This morning, Canada's Finance Minister, Jim Flaherty announced 3 new rules to the Canadian Lending Industry today.  These rules will come into effect on March 18, 2011:

    1. The maximum amortization on a mortgage backed by CMHC (Canadian Mortgage and Housing Corporation) has been reduced from 35 to 30 years.  This effects anyone who buys a home with less than a 20% down payment.

    2. The ceiling on mortgage refinancing has been reduced from 90% to 85% of the home's value.

    3. Government backing of home equity lines of credit has been removed.

    IMPACT TO YOU:

    These new rules should have the biggest impact on first time home buyers who are more likely to take a mortgage with a 35 year amortization and less than 20% down.  In the short term, I expect a slight lift in the demand for lower end Oakville homes (townhomes, semi-detached and small detached homes) as people enter the market before the change takes effect in March.  Long term, it should slightly dampen the rate of price increases in the lower end of the market as people are forced to save a little longer to either afford a 30 year mortgage or reach the 20% down payment mark.  The silver lining is that the rules will also help protect Canadians from overstretching themselves and encourage a healthy market that is viable for the long haul.

    Here's an illustration on the impact of a reduction in amortization rates on a $350,000 home with 5% down and a 3.69% fixed interest rate:

    Monthly Payment @ 35 years amortization = $1405.58

    Monthly Payment @ 30 years amortization = $1523.30

    Overall difference = $118/month

    $118 may not seem like much.  For those who can afford the increase, it encourages financial prudence by reducing overall interest levels significantly.  Those borrowers who are already stretched may have to look to homes in a lower price bracket (thus increasing demand at the low end of the market) and/or wait a little longer to buy.

    Removing government backed lines of credit does not directly impact borrowers however the indirect impact will likely mean harder qualification requirements and fewer approvals.  Lowered refinancing ceilings should have a similar effect and overall, force Canadians to borrow less.

    Prudence is the word of the day to me.  Bottom line is that if you can comfortably afford the home you want, these new tighter lending restrictions shouldn't impact you at all except to protect you from buying into an unstable housing model.

    Having said all this, I believe that moderate increases to interest rates are likely to have a much larger impact on housing values across the board.  If you are interested in buying or selling a home within the next few years I think the most important question to ask is how will changes to the economy, interest rates and lending regulations affect the overall value of your home.  While I share the view with many economists that the housing market will cool off in coming years, I believe this will result in a reduction in the rate of price increases as opposed to a decline in overall values.  This is a big distinction to make and one that I will devote more time to in a future post.

    If you have an opinion on the impact of these regulations on the local Oakville housing market, I would love to hear from you.  You can either leave a comment below, email me at lindsay@remaxaboutowne.com or call me at 905.484.5162.

    Regards,
    Lindsay 

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    Reader Comments (2)

    YOUR ARE DOING VERY GOOD JOB. I THINK I GOT MORE INFORMATION YOUR WEB. PLEASE KEEP DOING. I HAVE A AGENT NOW IF NOT YOUR ARE MY REAL ESTATE AGENT.
    MAY BE IN FUTURE.
    YOUR ARE DONING A GOOD JOB.
    THANKS FOR YOUR HELP.
    THANKS AGAIN.

    February 7, 2011 | Unregistered CommenterJAY

    Hi Jay,

    I really love what I do and care about my clients. Your kind words are greatly appreciated, thank you. Should you ever be in a position where you are without an agent and need some advice, please don't hesitate to contact me.

    Lindsay

    February 14, 2011 | Registered CommenterLindsay Walls

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