While I'm all for the idea of making mortgages more stable, I do worry what it means to first-time home buyers. This group is a significant part of the market, and it's already hard for them to get a foot on the property ladder.
The mortgage rules will touch everyone of course, but it's the first-time buyers who will have the most difficulty meeting the new requirements.
Part of me would rather see tighter rules for higher-priced product and more support for the first-time buyers who are working hard to buy a first home.
Then I take a deep breath and remember that we made it through the recession with comparatively minor scrapes and bruises thanks to our banking policies. Many Canadians bristled at the lending restrictions before the market crashed in 2008/2009, but it was partially those conservative banking policies that protected us from the turmoil so many other countries felt.

The amortization period of 30 or 40 years is a very recent phenomenon. For the longest time it was always 25 years. More and more Canadians are piling on debt because it's easy to do so. Increased amortization periods to 30, 35 and 40 years plus allowing Canadians to borrow more and more from the value of their home and increasing the debt ratio has all contributed to the icrease in household debt which can be catostrophic. It's been too easy to borrow money. I am completely in favor of this. It's short term pain for long term gain.

Josie stole my thunder a bit. She is absolutely right when saying the 25 year amortization is a recent thing. Up until 2007 25 years was indeed the maximum amortization, so this recent "change" is really nothing new. I think the real debate is whether or not CMHC should really be involved at all in the mortgage insurance business? Shouldn't the issue of one's credit-worthiness be left up to the individual banking institutions themselves without the "backing" of CMHC? Some would argue that that may tighten things up too much? What do you in the Forum think?

The most difficult roadblock that we can be faced with when looking at the shortened amortization is qualifying. When you apply for a mortgage, the bank will weigh what you make, against the mortgage (plus taxes) of the subject home plus your debt. If you shorten the amortization, you increase the monthly mortgage amount because you are paying it off sooner. In turn, it may be more difficult to qualify for the home that you want. Will one be paying less interest in the long term? Absolutely. Is it necessarily the best thing to do? Well, a family of 5 may have been able to qualify for the 3 bedroom home they wanted on a 30 year am, but not on a 25 year am. In some instances, people are willing to pay more interest so that their needs can be fit.
We need to understand that these new rules are put in place to make sure that CMHC does not follow in the footsteps of Fannie Mae during the US Housing crisis, and that our government will never have to spend money to bail CMHC out. The shortened amortization is their due diligence to ensure that those who do buy have enough cash flow to do so, to prevent the insurers from having to dish out. Same goes for the new refinancing rules - 80% does not require insurance, but 85% did. Now, CMHC will not have to insure any refinance at all.
The other thing that has not yet been cleared up is if this is a new CMHC guideline, or if this will be applicable to Canada Guaranty and Genworth. Banks and lenders have yet to post any changes, but the Bank of Canada posted that these changes are in regards to government insured mortgages. If this is so, there is still the option to have refinancing or higher amortizations done with CG and Genworth.

Here's an important piece of information for condo buyers who are awaiting the completion of their building: If you have mortgage approval received before July 9th – the latest date you can close the property is December 31st, 2012.

Shameless blog post plug in 3,2,1:
What’s more important, the story or the headline? These days, it’s seems like the latter. Most of us get our info in 140 characters or less (twitter)… anything longer and it’s lost next to an ad in one of those dated methods of information (newspapers).
With hardly any warnings or hints Jim Flaherty announced new rules that set the my twitter feed on fire. Realtors, Mortgage Brokers and the ever present “Condo Bubble Babies” posted details of Jim’s big announcement. The most common tweet was about amortization period shortening from 30 to 25 years… with that came the fear of hellfire and damnation for all.
… and then the phone started ringing. The online panic had spread, with most people being concerned with how the changes would effect their prospects (both of buying and selling). After several emails, and phone calls I figured a blog post would be best share with you the conversations I’ve had with them.
For starters, let’s clear up the biggest misconception. THE CHANGES DO NOT APPLY TO ALL PURCHASERS. Only if you’re purchasing with LESS THAN 20% need you read further. The changes announced on Thursday only apply to new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
If you haven’t already spoken with a bank or mortgage broker, here’s how to tell if you’ll be getting a government backed mortgage: If the downpayment is less than 20% of your purchase price these changes will affect you. So for that $350,000 condo you’ve been looking for, you’ll need at least $70,000 down to avoid the new rules.
Now let’s say you’re buying with less than 20% down, here’s what you need to know effective July 9th, 2012:
The maximum amortization period has been reduced to 25 years from 30 years. This was the biggest point being shared on the changes, so I wanted to spend a bit of this post describing what this means. I’m going to use a worse case scenario to illustrate the change. I’ll stick to a $350,000 purchase price and assume the buyer only has 5% to put down. A 3.29% fixed mortgage rate is pretty much the norm these days, so i’ll be using it in this example. If purchasing before July 9th, 2012 and amortizing for 30 years, you’ll be putting down $17,500 and you’re looking at a monthly mortgage of $1,493. Your CMHC premium will cost $9,809. After the 9th, you’d only be allowed to amortize for 25 years (max) making your monthly amount $1,668 (a $175/month difference). The good news is that the CMHC premium drops to $9,114 (savings of $695) AND your mortgage will be paid down 5 years faster with much less interest than before. I see a very small segment of the market being affected by the changes. Properties under $500,000 will probably see the biggest change since that’s the target range for first timers. My hopes is that the new rules will bring some relief to the over heated bidding wars we’ve been seeing!
The maximum amount Canadians can borrow when refinancing their home is 80 per cent instead of the former 85 per cent of the value of their homes. This change is aimed at the home owners looking to borrow against the equity in their home. It’s pretty straight forward and basically means you’ll have a bit less to borrow but more saved up in your home. I think this is a great move that creates even more stability in the Canadian market.
Purchasers can only put less than 20% down on homes (and condos) with a purchase price of less than $1 million. In my opinion, this is the most interesting of all the changes. Essentially the move puts a cap on the government backed mortgages to buyers with a purchase price of a million or less. With the new rules, you’ll need to put down a minium of $200,000. As limiting as the change may sound, the reality is that very few people buy million plus homes with less than 20% down. Most purchasers in this category are typically move up buyers, and if you’ve owned a home in Toronto for the last 10-15 years chances are you’ve probably seen gains of at least $200,000. As you may have heard, CMHC is nearing it’s limit to the amount it’s allowed to insure. I think this move was made to keep the program open to those who need it most – the first time buyer. Also, the cap add’s a new level to the guidelines. Down the road the decision makers may change the million dollar benchmark, especially with rising prices in the major areas like Vancouver, Toronto and Montreal.
In short, there isn’t really much to panic about. I don’t think these changes will drastically slow down the market, but rather add to the countries long term strength and stability… it could have been a lot worse, like the reintroduction of the 18% interest rate from the 90′s!

I think it is a good move and prevents us from ending up in a similar situation as the U.S. which they are still not recovering yet from their mortgage/banking crisis.

It does makes it harder for first-time home buyers and those with limited means to buy a home, and Toronto has become a very expensive place to own which investors and greedy developers are partially to blame.

I think there should be programs to help those with a combined income of less than $100,000, while taxes and fees to those who buy multiple properties or properties that are not their primary residence, to help pay for these programs.
In the U.S. you could claim your mortgage towards your taxes which is great to offset your home ownership expenses, however in the U.S. this was a big problem because many use that excuse to borrow as much as they can or more than they need. They were essentially using their home as a bank to help pay for their wants.

I think based on the rate developers are firing up new Condo developments in the Greater Toronto Area this change the in the mortgage regulation is actually going to serve a good deed for the developers, and investors who purchased pre-construction / resale units over the last couple of years.
The housing market in Toronto will become harder to get into with the new mortgage regulation, but if you put into contrast with the condo market in terms of pricing; I think it would still be affordable for first time buyers, and immigrants.
I think its a very positive move towards converting the process of "purchasing up to your dream home" into a well financially planned journey for those who are new to Real-Estate investing.

Alexander Kvitnitsky
www.Investment-Library.com