# No More 30 Year Mortgages



## Jay

To be announced tomorrow...
http://www.theglobeandmail.com/news...no-more-30-year-amortizations/article4358876/

I'm curious what the members of this forum think of this move, and the affects it will have on the housing market.


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## Chris L

While nothing is certain, there is a huge amount of downward pressure on real estate. I would certainly not be looking to buy into the market at the moment. The government is hellbent on a controlled landing. If they achieve it, it will be a first. That much I know. 

First 25 year ams, next new OFSI rules to tighten lending, then interest rate increases.

The run up in prices was due exclusively to lax lending and low borrowing costs when it should have had everything to do with a strong economy and rising incomes.


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## Jay

Perhaps my title was a bit premature... the actual announcement appears to be that the CMHC will no longer insure mortgages for longer than 25 years.
http://www.cbc.ca/news/business/story/2012/06/20/mortgage-rules-tightened.html


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## dogcom

I think it is a good idea because it should never have been put to 30+ in the first place.

Governments shouldn't be allowed to change the formula without very good reason up or down once the formula is set right.

I don't know why so many forum members like having these low down payment 30+ year mortgage conditions because other then greed it only hurts everyone down the road.


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## Brenner

dogcom said:


> I think it is a good idea because it should never have been put to 30+ in the first place.
> 
> Governments shouldn't be allowed to change the formula without very good reason up or down once the formula is set right.
> 
> I don't know why so many forum members like having these low down payment 30+ year mortgage conditions because other then greed it only hurts everyone down the road.


Agreed, they shouldn't have played around with it in the first place so the slow regression to the original rules is a good thing. Hopefully this takes some steam out of the markets along with the other credit tightening happening though I doubt it impacts my market much.


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## sharbit

Interesting, when will it be implemented?


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## HaroldCrump

What is there to stop a homeowner from keeping a 25 yr. amortization for every subsequent term renewal?


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## Jay

This will primarily effect marginal buyers - people with less than 20% down payments who could only afford their properties with a 30 year amortization. I wonder how much of the market this really represented? Buying property in those circumstances would seem like a terrible decision... is that one many are currently making? Perhaps even if that does only represent a few people, this will contribute to the general perception that real estate has peaked, and it's no longer a guaranteed investment... and more people will reconsider their property purchases.


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## phrenk

This is great news for folks like myself who have been waiting on the sidelines for a first purchase, while being able financially to afford a 20-30% downpayment.

I expect that in 6 months, the real correction will begin as the pre-approved loans (pre-announcement) expire. The difference between a 25 year amort and 30 year amort is quite substantial (approx. 15% increase in monthly payments). This could indicate that a drop of at least that magnitude should be expected in home prices, if not more.


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## Sherlock

Jay said:


> This will primarily effect marginal buyers - people with less than 20% down payments who could only afford their properties with a 30 year amortization. I wonder how much of the market this really represented?


I think I read somewhere that the average downpayment for first-time home buyers is 7% and they usually choose the longest amortization available.


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## Sampson

Spot on as usual Harold.


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## marina628

I would hope most people are smart enough not to be buying the most expensive home they can afford .I have a niece who has owned a home for 20 years.Her first house was $170,000 and 25 year mortgage ,her current home is $600,000 and she is one who took a 40 year mortgage in 2007 .My husband and i bought 3 homes in 15 months from 2009 -2010 ,we took 35 year loans with 35% down on all of them but they are already paid down significantly and average amortization will be 9 years to pay off.
We took the max amortization because the bank said we had to and without leaving the office we signed papers to double the mortgages after the first 'normal' payment came out.Our data is in there with the first time buyer who will have to roll their change to eat so I am not sure it will have a great effect one way or another .


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## Young&Ambitious

Sherlock said:


> I think I read somewhere that the average downpayment for first-time home buyers is 7% and they usually choose the longest amortization available.


But this isn't surprising by any means. The majority of first time home buyers are at the lower income earnings of their careers (ie. just starting out) and expect their incomes to increase rapidly within the first 5 years. Or maybe this is just me


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## marina628

Did they say when this takes effect?And you have a good point Y&A ,as long as interest rates do not climb .Rate hikes plus 25 year max could make a difference.I don't think the 25 year amortization on it's own will do much.


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## Jay

Young&Ambitious said:


> But this isn't surprising by any means. The majority of first time home buyers are at the lower income earnings of their careers (ie. just starting out) and expect their incomes to increase rapidly within the first 5 years. Or maybe this is just me


Ha... except this part hasn't been happening - at least not with the consistency of previous generations. Salaries have been relatively flat, and new grads quickly find themselves capped - well below what their equivalent older workers are making,and unable to rise up (there are exceptions -but I see this a lot). I think this in particular makes this generation (late 20, early 30 year olds) in the most danger, as they are already fairly maxed out...and that's before kids! I think these people are at the greatest risk should interest rates climb.


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## Young&Ambitious

Jay, I've been hearing a lot of what you're saying in the news, the extent of which surprises me. Perhaps because this doesn't reflect me, as mind you I thought out my future and did not choose a degree in philosophy (no offense to anyone who has a degree in philosophy...). And yet, those people who can't find jobs in their fields or are making minimum wage or near to it are not the ones buying-they cannot afford to and would not be eligible for mortgages. 

The ones who are buying, I would think, should actually be in their careers, albeit in junior positions.


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## Jay

I actually wasn't referring to students who were unemployed or unable to build a career, but rather young professionals in big cities who have been in the workforce for 2-5 years. They earn a healthy salary by most measures(say $50-80k), and have been given raises a few years into their careers, but their salaries are not increasing rapidly, and likely won't any time soon...nor are they likely to advance anytime soon(until more baby boomers retire). They purchased houses early (likely with 5% down, long amortization) and are living reasonably frugally to pay their bills. The dual-income earners are in good shape(until they have kids...and have daycare costs!), but many of the single-salary earners are living frugally to be able to afford their $350k+ condos (or houses). I think these are the people that will be in biggest danger if interest rates start to climb - perhaps this change will even prevent the more marginal ones from buying (a good thing).

I'm in the demographic above, have plenty of savings (enough for a very large downpayment), though am still renting for multiple reasons. The vast majority of my friends are in the above category though....and many have kids on the way. I am concerned about what a rise in interest rates might mean for them in 3-5 years time. I do not anticipate their salaries will increase significantly.


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## Fain

I don't like this move one bit. Let the Real Estate cycle run it's natural course


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## Homerhomer

They should have never extended the 25 year amortization in the first place, undoing their won mistake I guess you could say better late than never.

Government is probably now realizing that interest rates may not go up for an extened period of time and otehr measures had to come in attempt to control the madness.

As Harold says there isn't anything to prevent anyone from renewing each time at a 25 year term, which again is a tool if used properly can work quite well, however if misused especially with topping up the mortgage each time it is renewed to cover credit card bills, it can lead to way to many poeple in the retiring age carrying mortgages.


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## crazyjackcsa

There is a pretty simple "work around" for buyers: Switch to monthly instead of bi-weekly payments. A 30 year mortgage paid bi-weekly is actually paid off in about 26.5 years. So if you just switch to monthly or semi-monthly it works out about the same.


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## HaroldCrump

Let's understand what is truly going on here with all these highly publicised "changes" - _the government does *not *want to cool the RE market_.

All these "changes" - the reducing of HELOC limits, the OSFI regulation, the 30 yr. amortization, etc. are merely PR exercises.
Everyone expects the govt. to _do something_, so the govt. is doing something.

They don't have the slightest intention of slowing down the RE bubble.
That would be pretty dumb on their part, given everything that's going on.


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## MoneyGal

crazyjackcsa said:


> There is a pretty simple "work around" for buyers: Switch to monthly instead of bi-weekly payments. A 30 year mortgage paid bi-weekly is actually paid off in about 26.5 years. So if you just switch to monthly or semi-monthly it works out about the same.


But would buyers be able to do this -- would lenders allow it? I suspect they are going to have hard limits. I should read that Globe article, I suppose.


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## Spudd

MG, I think what he's saying is that most people with a 30-year mortgage are on a biweekly payment schedule (which accelerates the payoff so the amortization ends up being around 26.5 years instead of 30). By taking out a 25-year mortgage on a monthly payment schedule, the end result is the payments will be approximately the same as the 30-year biweekly one.


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## Homerhomer

Spudd said:


> MG, I think what he's saying is that most people with a 30-year mortgage are on a biweekly payment schedule .


I am pretty sure this is an assumption that I doubt is correct.


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## MoneyGal

But that doesn't make sense, does it? The assumption is that someone with a 30-year mortgage is going to move down to a 25-year mortgage. The 30-year mortgages are not being called - it's that they won't be available to new borrorowers. So there's no "switching to" new payment arrangments. Right?


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## fraser

My understanding is that the new rules will only apply to new CMHC insured mortgages. Non CMHC insured mortgages will not be impacted. At one point we took a small second mortgage in order to get under the CMHC bar so that we could avoid paying the CMHC insurance fee. 

I understand the Government's concern. Should the housing market take a dive in a few markets, CMHC, ie the public treasury, would be 'on the hook' for any shortfall on disposition of properties that they insured.


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## crazyjackcsa

Homerhomer said:


> I am pretty sure this is an assumption that I doubt is correct.


I only have anecdotal evidence, but everybody I work with that has bought a house over the last 5 years did it that way. 

Look at it from the bankers perspective though: Young couple comes in all anxious about missing out on a 30 year mortgage and being priced out of the market.

Mortgage salesperson says "On a biweekly payment plan on the old 30 year mortgage, 300k @3% is $630, but if we switch that to 25 years monthly, your payments are $1,420."

Young couple does some terrible math, and figures that's only $160 a month more and they have a 25 year amortization instead of 30. 

If they decide to keep the payments the "same" and go with $630 semi-monthly, the mortgage would only have to be about 10% less.


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## kcowan

This is another step in a series of "tightening" steps: 40/5, 35/10, 30/15 and now 25/20 in terms of amortization period/down payment. The question is: "What will be the tipping point?" to bring speculation under control. In response to a reporter who asked Flaherty why a surplus of condo consrtuction in Toronto isn't pushing prices down, he said nothing. This illustrates that he does not know the answer.

Just like with frogs, gradual changes do not effect change in behaviour. It takes sudden dislocations.


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## lonewolf

Many will not agree but I think the mood of the masses has an effect on the length of mortgages. @ market highs more confidence & the thinking is the money can be paid back. @ the bubble high in Japan I kinda remember hearing that the grand kids were not even born yet would be obligated to finish paying for the mortgage.


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## dogcom

As tax payers aren't we on the hook for a CMHC meltdown. So any attempt to slow down the market slowly and even let it go sideways for a number of years is a good idea. Letting the market decide with no money down and crap like that is terrible for everyone on this forum and the tax payers in Canada I would think.


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## Causalien

Whatever happens, the shitstorm can be observed when 2013 comes to pass. As the 2008 0% down 40 year amortization comes up for renewal. I wonder if people who used it and just keep on adding their debt to their mortgage can requalify for a 25 year mortgage, or they can keep their previous 40 year terms and just extend and pretend forever. 

Last time the government did this. The local RE agencies used the opportunity to get people to signup NOW, bring demand forward for one year. It is 2012 and surprise, next year is 2013. Which means two big mathematical forces will contribute to the downside pull.


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## dogcom

Causalien you are probably right and it may be to late to fix and we will face the shitstorm. But it is still a good idea to start somewhere so we don't have to keep going through it.


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## marina628

This will only affect new mortgages and anyone with a deal in the works can still get their 30 year amortization.I suspect many will rush out and buy anything this week just to get a 30 year mortgage.For most of us reading this forum we entered the real estate markets when you only had 25 years year option and needed 10% down.


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## marina628

In 2008 they signed 40 year terms with the bank so the banks will just renew them and home prices have easily got up 10-15% since that time so they should be fine with the equity being 20%.


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## CanadianCapitalist

Concurrently, the OSFI has released final guidelines for "prudent residential mortgage underwriting":

- Max. LTV of Home Equity Lines of Credit cut to 65%.
- HELOCs will continue to be revolving lines of credit. i.e. no amortization is needed.

The documents are in dense bureaucrat-ese but it looks like the new changes will not be retroactively applied to existing HELOCs.

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=4967


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## Causalien

Sweet, now I can finally leverage up. Been waiting for this ruling clarification. Any mention of when this guideline will finally be written in law?


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## HaroldCrump

Out of all these half measures, lip service, and much-ado-about-nothing changes, perhaps the _only_ change that has a slight chance of making an impact to the RE bubble is the pulling of CMHC coverage for residential homes > $1M in value.

I am not sure what the exact enforcement will be like at the retail mortgage level, but there should be some pull back in that sub-sector.
A lot of bank appraisals might now magically start coming in at $999,999.99
So ideally that range should have been $750K or so but whatever.


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## Charlie

I didn't like the 40 and 35 year amortizations, but 30 seemed OK. If you buy before age 30 you'll be paid off by 60. 

It's tough enough for first time buyers....not so sure the decrease in price (if any) will benefit them as much as this will hurt.  I don't think CMHC insurance was available for investors/speculators. I disagree with this move.


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## Butters

Causalien said:


> Whatever happens, the shitstorm can be observed when 2013 comes to pass. As the 2008 0% down 40 year amortization comes up for renewal. I wonder if people who used it and just keep on adding their debt to their mortgage can requalify for a 25 year mortgage, or they can keep their previous 40 year terms and just extend and pretend forever.
> 
> Last time the government did this. The local RE agencies used the opportunity to get people to signup NOW, bring demand forward for one year. It is 2012 and surprise, next year is 2013. Which means two big mathematical forces will contribute to the downside pull.


I do believe you're right

But on the other hand, this isn't going to affect the whole country equally, mainly just vancouver! And toronto, probably calgary... specifically the condo markets

But for other places, like winnipeg, this will slow the bidding wars, but people will always want houses, and pay for them, do what they need
So, I believe those main cities, vancouver and toronto, will start decreasing, the whole country might get a scare from them, but over the next 6 years things should stay fairly stable for non van/toronto cities
in 2 years, i see them raising the rates up .5 and another .25 each year to follow

Home owning seems too simple to me, Stay at home, or rent until you get 20% of what type of house you want, start browsing the markets for a year, get all the info (you will now be above 20%) buy your house with your stable job

If you dive into a house with 0% down, no plans, below average job... that calls for trouble!


**Edit, Miser below, that is how I understand it aswell


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## Miser

Correct me if I'm wrong here.

Flaherty will cut the maximum term of *insured* mortgages to 25 years from the current 30 years and will end insurance for homes which cost more than $1 million. The changes will also limit refinancing loans to 80 per cent of the value of a home, from the current 85 per cent


Insured is less than 20% down....hence CMHC insurance.
If you have over that no insurance is needed.....30 yrs.?


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## Jay

^^ That's my understanding as well... having said that, I do believe most of the people who wouldn't have been able to buy without a 30 year mortgage were putting less than 20% down. I think this actually represents a fairly large percentage of first-time homebuyers (20-30 somethings). The question is will this cause them to re-evaulate their purchases, or look for other loopholes (and I see many) that allow them to proceed with their purchase. Will other buyers fill the void if there are fewer first-time buyers? Is this a lot of nothing in the end?


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## phrenk

Miser said:


> Insured is less than 20% down....hence CMHC insurance.
> If you have over that no insurance is needed.....30 yrs.?


Why would a bank amortize a loan over 30 years ? It's riskier for its balance sheet, and there's no CHMC to backstop in case of losses. 25 year amortization will become the norm, whether its insured or not.


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## sags

Banks have been insuring all of their mortgages recently, electing to pay the CMHC insurance cost, so they can sell the bonds guaranteed by the Canadian government, at a premium price.

That is supposed to end with new regulations, as Flaherty said the banks have to shoulder the risk.

The cost of mortgage financing will likely rise as a result.


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## yycmortgageguy

If you have 20% or more to put down, 30, 35 and in same cases with some lenders, 40 year amortizations do still exist. It is only the *insured mortgages that are capped at 25 year amortizations as of July 9th*


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## marina628

I am sure the mortgage brokers will come out of the wood works now to offer their services to bend the new rules


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## yycmortgageguy

Interesting comment. Don't like brokers?

It is very cut and dry with the new rules - you have from now until July 9th to apply under the old system in order to still qualify at a 30 year amortization, and it must close before December 31st. If the application for an insured mortgage is sent in to the insurer after July 9th, or the possession date falls after Jan 1, 2013, the longest amortization is 25 years. Don't see how you can bend that!


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## albertGQ

Looks like a pre approval will only hold the rate and not the amortization. Is that correct?


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## dave2012

I heard yesterday that Justin Beiber was denied a mortgage... hard times for all ! :chuncky:


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## steve41

From the "Do I really need to know this crap?" department....

A 35 year old with $200K in his RSP, earning $75K decides to take out a $200K 5% mortgage. How does a 25 year term compare with a 30 year term? Hint.... the shorter the better.

30 year term
25 year term


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## iherald

steve41 said:


> From the "Do I really need to know this crap?" department....
> 
> A 35 year old with $200K in his RSP, earning $75K decides to take out a $200K 5% mortgage. How does a 25 year term compare with a 30 year term? Hint.... the shorter the better.


Doesn't the graphs show he has more money going with the 30 year one? I didn't read all the charts, but the summary seems to show Maximum capital $1,179,338 reached at age 61 for the 25 year mortgage and Maximum capital $1,229,966 reached at age 61 for the 30 year mortgage.


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## steve41

The measure is what his lifestyle (after tax income) will be. The plans indicate that a 25 year mortgage will deliver him a max $36,389 lifestyle out to age 95, whereas the 30 year will deliver only a $36,235 lifestyle. Lifestyle is the important metric, not size of capital attained. Nothing is intuitive here. If I knew more about the mortgage market, I would have adjusted the rate... I assume the rate for a 25 year mortgage would differ from a 30 year.


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## andrewf

Fain said:


> I don't like this move one bit. Let the Real Estate cycle run it's natural course


So the government should stop insuring all mortgages?


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## Cal

^ Had they not messed around w the amortization periods in the first place, the RE market probably would have run its natural course by now.


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## Berubeland

Ironically in the past, mortgage rule tightenings have meant a flood of property virgins clamoring to get in before they're priced out forever. Maybe this is the latest ploy to heat up the numbers between now and July 9th. I predict more bidding wars in the near future.


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## marina628

I agree with you Rachelle ,my friend is a RE agent and she said she has 13 showings booked for tomorrow on a listing from Tuesday.


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## Chris L

marina628 said:


> I agree with you Rachelle ,my friend is a RE agent and she said she has 13 showings booked for tomorrow on a listing from Tuesday.


The last fools rush into market. Yippee!


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## dogcom

Marina628 this is always the case when rules change or when interest rates are about to go up. ChrisL I agree it is probably the last of the fools sitting on the fence.

Overall though for first time buyers watching prices rise year after year for what seems like forever it is tough to continue to wait and wait when you want to start your life. For me when I got in I did wait for a good market downturn when I moved up and waited for the price of my house to be way overpriced to make my next move putting me mortgage free with a better house and still in a great area only a half mile away. 

I think other people have made better deals then I have and I probably overpaid for the house I have now but in the end I won the war while they won most of the battles. So now that I think of it a person really does need to save exercise patience and wait for the right time to strike because unlike losing $500 on a penny stock a house is a huge purchase that can make or break you.


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## dcaron

Found this excellent blog and impact analysis on the New Mortgage Rules ...

http://www.canadianmortgagetrends.c...0-observations-on-the-new-mortgage-rules.html


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## andrewf

Agreed that a consequence of tightening rules is to bring demand forward. UK government tried this with their VAT during the recession. They temporarily lowered the rate in an attempt to bring forward durable goods demand (cars, appliances, homes, etc.).

Bringing demand forward means demand will be lower in the future. Once this tightening cycle stops we could see unusually low demand.


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## andrewf

dcaron said:


> Found this excellent blog and impact analysis on the New Mortgage Rules ...
> 
> http://www.canadianmortgagetrends.c...0-observations-on-the-new-mortgage-rules.html



That is a great piece; thanks for sharing.

I agree with his conclusion. The regulators (OFSI, Finance, Bank of Canada) to tighten lending standards to cool the housing market, as an alternative to raising rates. Tightening lending standards will over the long term increase the stability of the housing and banking sectors, and raising rates to cool one sector at a time of anemic demand in much of the economy would be a mistake. Absolutely the right thing to do. And I expect them to continue to make small nudges until the market capitulates and declines to a more reasonable price/income or price/rents valuation. Hopefully they avoid a full-scale crash and panic that would see us overshoot fair valuation to the downside, as we see in the US. There was a lot of waste in the US in the residential real estate sector. Millions of empty houses.


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## davext

Just sold my condo this weekend, I'm not sure if it was the new rules that gave the seller a push. I was getting a little worried with all the grim news from the media and the lack of showings in the 4 weekends that the condo was up for sale.

I do think that there will be a bit of a push for some people to buy before the 30 year amortization goes away.


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## Spudd

I hope so, I'm putting my house on the market this week.


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## Lucy

I think the new rules are very prudent. Even though the amm is shortened, the are also increasing the GDS and TDS. GDS will be 39% from 32%. This is significant as far as keeping the economy rolling. This means a d
Family earning $100,000 now has $7,000 more with which to qualify for a loan. The shortened amm means more principle is paid down. Very well thought out changes.

Trust me, everyone wants a soft landing. A crash will create blood in the streets and a depression like south of the boarder.


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## dilbert789

The problem I see with this is that for those that just qualify for the 25yr but would have chosen the 30 to drop their payments a bit while they are getting into the housing market, don't have that option. Now for those people money is that much tighter because they still buy the place, but are right on the line. If they're that close to the line then it probably doesn't take much to default. 

Better caps would have been to set a low housing to income ratio. The total debt to income is stupid, if you buy a car before the house you're screwed, but if you buy it after it's ok.


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## MoneyGal

dilbert789 said:


> The total debt to income is stupid, if you buy a car before the house you're screwed, but if you buy it after it's ok.


Smart people figure this out.


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## Jay

dilbert789 said:


> The problem I see with this is that for those that just qualify for the 25yr but would have chosen the 30 to drop their payments a bit while they are getting into the housing market, don't have that option. Now for those people money is that much tighter because they still buy the place, but are right on the line. If they're that close to the line then it probably doesn't take much to default.


Or they could just buy a cheaper house or hold off buying... The only difference I see between those choosing a 30 year mortgage because they need extra breathing space, and those because they have no other choice, is that the former are just making a bad financial move, while the later are actually being prevented from making a really bad financial move. Either way, the changes should have the affect of people not buying - or buying cheaper houses.


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## Just a Guy

You know, during normal interest rate times, compound interest will double the principle in 7-10 years...is it worth paying the price of the home one more time just to get a slightly lower monthly payment?


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## Berubeland

Just a Guy said:


> You know, during normal interest rate times, compound interest will double the principle in 7-10 years...is it worth paying the price of the home one more time just to get a slightly lower monthly payment?


I have often been completely astounded at how bad most people are at simple math. The scammers have reduced everything from cable to living room furniture to paycheck loans to monthly payments or low low fees. It look inexpensive but it's not. 

Just the other day I walked by a sign from a payday loan company AKA loan shark. Only $20 for a $200 payday loan. Seriously who doesn't want a piece of that kind of action when the banks are paying 2% if you're lucky. 

If you figure most people are paid every two weeks, that's $520 annual interest for a loan of $200 or over 250% interest. Because the general population is so bad at calculating what the real cost of borrowing is, stopping them from hanging themselves with financial products that are complicated and difficult to understand just makes so much sense to me. It's easier to change the law then to teach people who are completely disinterested in how interest works.


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## Spudd

Berubeland said:


> Just the other day I walked by a sign from a payday loan company AKA loan shark. Only $20 for a $200 payday loan. Seriously who doesn't want a piece of that kind of action when the banks are paying 2% if you're lucky.
> 
> If you figure most people are paid every two weeks, that's $520 annual interest for a loan of $200 or over 250% interest.


I don't get it. I thought payday loans were they loan you $200 until payday, once you get paid you pay them back. That would be 10% interest assuming you pay them back. Is your calculation assuming the people repeatedly take out a payday loan every paycheck?


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## dogcom

Just stepping foot in the door of a payday loan or Money Mart or whatever makes you a good desperate costumer with bad math in my opinion. I once saw a letter from Money Mart for my step son in my mail one day and immediately told my wife that he was screwed and we would soon hear how bad he is doing. My wife didn't believe me but within 6 months I heard the disaster story of how he got caught up in gambling and now wants to do better with his money and so on.


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## sags

Spudd said:


> I don't get it. I thought payday loans were they loan you $200 until payday, once you get paid you pay them back. That would be 10% interest assuming you pay them back. Is your calculation assuming the people repeatedly take out a payday loan every paycheck?


In Ontario, payday loans can legally charge 21% interest.

THe legislation is pretty well useless, as they find ways around the rules.

Examples..............

Charge to put the "loan" on a credit card and charge a fee for the credit card.

Charge a "fee" to use the credit card to access the funds.

Shorten the time period of the loan, sometimes having it come due the day before payday so they can charge "late fees".

Manipulate the paper work to reflect a 21% rate, when it is much higher. Borrow 100 and the loan is recorded as 130 for more interest.

Cash Store and Money Mart were found guilty of charging too much. The settlement required they knock 5 dollars off loans until the money was returned to customers. No loans...........no rebates.

The most nefarious part of payday loans is the disappearance of standard loan companies. The companies who used to make small affordable personal loans over a period of months or years, have all changed to payday loan structures.

Payday loan companies are one of the few places advertising "help wanted" in this area..........so times are booming for them.


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## sags

At some point, income will cap home prices.

There are 6 million baby boomers approaching retirement, many with a mortgage debt and little retirement savings. 

People who bought their homes 30 years ago, have a lot of negotiating room on price. Those who bought in the last 10 years.........not so much.

Boomers can sell their homes for prices that would mean a loss for later home buyers.

I expect home prices will turn downward and begin a long slow slide, but we will see what happens.


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## Berubeland

Spudd said:


> I don't get it. I thought payday loans were they loan you $200 until payday, once you get paid you pay them back. That would be 10% interest assuming you pay them back. Is your calculation assuming the people repeatedly take out a payday loan every paycheck?


Right so your next payday would be...in a week or possibly two. You pay $20 interest on $200 for 10 days for example. Annualize that amount = lotsa dough.


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## Spudd

Yeah, sure, if you do it every week! Hopefully people aren't doing that.


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## kcowan

The government has suspended rich immigrants from applying for citizenship. This should stop the flow of speculative orders for condos in GTA and GVA and possibly SFH. I think they needed $1.6 million of which $800k is real estate investment.


> Effective July 1, 2012, Citizenship and Immigration Canada will temporarily cease accepting new applications to the Federal Skilled Worker (FSW) and Immigrant Investor programs.


Source
This is the second punch of the 2 punch program to moderate RE prices.


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## andrewf

Spudd said:


> Yeah, sure, if you do it every week! Hopefully people aren't doing that.


B is talking annualized interest. The interest is high--hopefully people do it only for short periods. But if you think of it as 'just' 10% for 10 days, that makes you more likely to use it.


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## Sampson

kcowan said:


> The government has suspended rich immigrants from applying for citizenship.
> Source


That's not exactly true. Those are very specialized programs, and rich immigrants will continue to apply and get access under conventional rules.

I don't think the skilled worker programs brought rich foreigners here anyway, not in Alberta. Most of those immigrants coming under these types of programs a typically very middle class in their respective countries (effectively poor by our standards).


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## Berubeland

Spudd said:


> Yeah, sure, if you do it every week! Hopefully people aren't doing that.


There are people who are doing it every week and anytime they can,( the lenders). There is are always two parties to a transaction. That's the side you want to be on. Seriously I do not have the stomach for that kind of business even though it is legal and all.


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## donald

^Maybe it's time to look into being a shareholder for these companies sags!I don't view them as predators(the lenders-and there shareholders)They are loaning out money to ''high risk'' people,people(for whatever reasons,usaually many)can't do business with regular banks.(these are generally people that have many habitual problem and not a ''rough'' spot)

I've had several employee's(day labourer's) use payday loans(in all cases they have destroyed there credit with banks,credit card co's ect)It's not right or fair.But a lot of things are'nt fair or right.I'm surprised you see it the way you do berubeland,there is some similarities to the same demographic you deal with being a landloard-the same people you likely rent to and have problems collecting from(who generally don't give 2 shits about there landloard) are the same people using payday loan companies.-I'm almost certian you see a lot of your clients rent cheques stamped with payday loans co's in your deposit book?It's like the debate of the tobacco companies/and there end user's.Interesing topic reayday loans.


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## sags

donald said:


> ^Maybe it's time to look into being a shareholder for these companies sags!I don't view them as predators(the lenders-and there shareholders)They are loaning out money to ''high risk'' people,people(for whatever reasons,usaually many)can't do business with regular banks.(these are generally people that have many habitual problem and not a ''rough'' spot)
> 
> I've had several employee's(day labourer's) use payday loans(in all cases they have destroyed there credit with banks,credit card co's ect)It's not right or fair.But a lot of things are'nt fair or right.I'm surprised you see it the way you do berubeland,there is some similarities to the same demographic you deal with being a landloard-the same people you likely rent to and have problems collecting from(who generally don't give 2 shits about there landloard) are the same people using payday loan companies.-I'm almost certian you see a lot of your clients rent cheques stamped with payday loans co's in your deposit book?It's like the debate of the tobacco companies/and there end user's.Interesing topic reayday loans.


Money Mart, Cash Store, Instaloans.........and many others have been caught........charged........and convicted of fraud for charging beyond what they are legally able to.

The millions of dollars remedy from the class action lawsuits............knock $5 off the next loan.

Predatory lending...............supported by the government.


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## themortgageguy

*Highlights of new mortgage rules posted in real estate discussions*



Jay said:


> Perhaps my title was a bit premature... the actual announcement appears to be that the CMHC will no longer insure mortgages for longer than 25 years.
> http://www.cbc.ca/news/business/story/2012/06/20/mortgage-rules-tightened.html


There seems to be a lot of confusion around the details of the new rules (CMHC and OSFI). I've posted a thread that lays out the highlights.


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## themortgageguy

There's nothing wrong with 30 year mortgages or 5 % down on a home. The basic fact is that mortgage debt is the cheapest form of debt available AND you buy something you can live in AND it typically appreciates at a wonderful rate as well. 

The housing market is huge part of the economy slowing that down will slow economic growth. 

The percentage of mortgages in arrears in Canada is incredibly low - around 1%. Even during the years of high interest rates (Trudeau years) the arrears were not significantly higher. 

The real problem is the high interest debt i.e. credit cards. When a client refinances their mortgage to get rid of their high interest debt the savings per month can be significant. It's amazing how many people make $100K per year or more and actually own NOTHING. Its usually not due to their mortgage payments but credit card debt. The government would do well to regulate the banks and their credit card offerings rather than focus on cheap money secured by a home. While all the banks have been crying about the state of consumers finances regarding their homes they continue to offer credit cards via bulk mail.

Most people simply cannot practice any form of self restraint and that is the problem. Helocs are abused by these people I completely agree with the 65% maximum amount for a heloc. They are usually never paid off in full and are subject to prime rate fluctuations. You local banker loves them for the interest charges they receive and because they are registered as collateral charges NOT a standard charge as a mortgage usually is.

I think the 25 year amortization will definitely have an effect on housing prices. On a $500,000 mortgage with fixed rate of 3.09% that is $250 a month difference. That's a lot of money from disposable income for most people. Yes many people do buy with 20% but most 1st time home buyers do as do multiple time home buyers do not.

Homes over $1M actually from a very very small percentage of CMHC's insurance book so the move by Flaherty is, I think, one of principle and political visibility. Of all the new rules this one is the least likely to have any meaningful effect at all.

Uninsured 30 years mortgages will continue to be available for refinances and home purchases but of course not through your banks and at higher rates of course (no insurance right?). Heck there are even 40 year amortizations available as well.

What will be interesting is how the mortgage lending qualification rate and Business for self income qualification guidelines do to the market. These two are OSFI specific and effect all mortgages, insured or not. There has been very little discussion on this and it will be interesting to see how it shakes out.


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## kcowan

Here is a thoughtful article on the occurence of bubbles:
Hemingway's Rule
Excerpt:


> Hemingway’s rule says the fall in Canadian house values will be swift. If anything, I think the upcoming crash in Canadian real estate prices will be more rapid than what happened in the U.S. First, there is the stark record of the American fiasco. Once prices begin falling, the parallels will become immediately obvious and there will be sudden alarm. Secondly, every bubble attracts momentum investors, these are the “flippers” who buy in hopes of selling to a greater fool. In the U.S. distressed investors in many states simply walked away from their properties, leaving banks in the lurch. Here in Canada, walking away is not so easy. If you signed the mortgage papers you are liable for the debt even if a foreclosure happens. How many flippers are going to hang around when the going gets tough? How many want to be saddled with hundreds of thousands of dollars of debt? They will bail at the first sign of a market meltdown. I expect to see a large number of condo projects going bankrupt in most major urban areas. It will not be pretty.


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## steve41

Hemingway..... wasn't he that fiction writer guy?


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## themortgageguy

steve41 said:


> Hemingway..... wasn't he that fiction writer guy?


ok that was funny :encouragement:


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## kcowan

steve41 said:


> Hemingway..... wasn't he that fiction writer guy?


Maybe he got lucky this once! How much have property values dropped on Hornby Island so far...


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## steve41

kcowan said:


> Maybe he got lucky this once! How much have property values dropped on Hornby Island so far...


Ouch! Mind you, we still get re agents dropping by in West Van with the old..... "I have a buyer" line. No let up on that front.


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## kcowan

steve41 said:


> "I have a buyer"


Realtor speak for "I want your listing"!


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## steve41

Fine.... but the houses in my area are still selling above listing price. Did I say houses? I meant lots.....this is 'tear-down' territory.


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## kcowan

Can you hear the hissing sound yet? Do a quick sale and then rent.


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