Surprise! (not) Big Changes Coming to Canada’s Mortgage Rules

In an effort to cool Canada’s housing market (read: Toronto and Vancouver), the government announced last night the end of the 30 year mortgage – just a few years since they parted ways with the 35 year mortgage (and the fourth intervention in 4 years).

Also expected to be announced at a news conference today:

• re-financing of current mortgages capped at 80% of the appraised property value (vs 85% currently)
• no insured mortgages for properties worth over $1 million (meaning you need at least 20% down payment)

How will this affect Toronto Buyers and Sellers? Here’s what we think:

• Some Buyers may have to wait longer to buy  if they were depending on the 30 year mortgage to comfortably afford their new house or condo…for example, a $300,000 mortgage at a 3% interest rate would have been $1,286 per month at a 30 year amortization;  now it’s $1,445. But really, if a Buyer was depending on amortization to afford their new home,  it was probably always a good idea to keep saving a bigger downpayment and wait to buy.
• Some investors will have a harder time making the math work on their investment – breaking even (or ideally making a monthly profit)  is critical for investors – you can read all about it in our blog: How to Make Money in Real Estate. 
• It’s always blown my mind that you could buy a $1 million property with only 5% down. To me, this change is a no brainer. Not sure how many people it will affect – our million dollar Buyers have always had sizeable down payments.
• We’ve always said that you haven’t ‘made’ any money on your house or condo until you sell it – just because your neighbourhood got $100K more than you paid 6 years ago, unless you’re ready to sell, you aren’t $100K richer. The re-financing game has always scared us a bit – and maxing out at 80% of the appraised value makes sense to me. (wasn’t this one of the contributing factors to the US melt-down?)