Thoughts on Mortgage Changes

Yesterday, Ottawa issued a statement saying that feel it is necessary to tinker with mortgage rules again. Here's the skinny, and how it will effect you and the greater market.

1. They will no longer insure Secured Lines of Credit

This shouldn't effect much of the mortgage market at all. I'm not totally against lines of credit. They work in some situations. I do believe that the current state of the market makes more sense for a variable rate mortgage and some careful planning to avoid paying a penalty. Further to this, very few lines of credit have government insurance on it, so it shouldn't put any kind of ripple into the market.

2. Reducing the amount to be refinanced from 90% to 85%

This is a further measure to last year's decision to go from 95% to 90%. Basically, this means that you have to have at least 15% of equity left if you want to refinance your home. In my experience, few people want to pay an additional premium, so most people refinance to 80% Loan to Value anyway. This is probably a wise move, because if income or job situation changes, selling a house with 15% equity should prove easy. This does mean that some borrowers who use their home equity like an ATM Machine will have to change some spending habits.

3. Reducing the Amortization from 35 Years to 3o Years.

This is also a further measure to two years ago, when the length of the mortgage was reduced from forty years to thirty-five years. This probably will have the most significant impact on the industry, as this will change the average mortgage by about $100 per month. I'm not really sure if this really does a lot to reduce the risk, except it does decrease the total debt load on the average household. Of course, you can also expect to be paying your mortgage off a little sooner.

Even with the change in amortization, these are relatively small changes and do more to reduce the risk for companies like CMHC, Genworth or Canada Guaranty, should borrower default happen.