Valley First

Tightening Mortgage Rules

Valley First expert responds to tightening mortgage rules
June 25, 2012

Penticton, B.C.—Last week the Canada Mortgage and Housing Corporation tightened mortgage rules for the fourth time in as many years. The experts at Valley First say the latest round of changes, which take effect on July 9, may have a significant effect on current homeowners and potential buyers in the Interior.

The major changes to mortgage rules include reducing the amortization on government-insured mortgages from 30 years to 25 years, and lowering the amount of equity homeowners can take out of their homes in a refinancing of their home from 85 per cent to 80 per cent. The new rules, announced by Finance Minister Jim Flaherty, are designed to make it harder to buy and borrow against your home, slow the growth of a potential real estate bubble and curb the accumulation of household debt.

“Lowering amortization and refinancing ratios is a good move,” says Jim Lamond, vice-president of credit at Valley First. “This change will protect homeowners from borrowing too much against the value of their homes, which can be a real concern in areas that are seeing a drop in home value.”

While Lamond agrees with tightening the rules around refinancing, he notes that the shortened amortization will place a heavier burden on people looking to buy a home.

“Cutting amortization is going to make purchasing a home difficult for younger people and first-time buyers,” says Lamond. “Affordability will take an instant hit, pricing many people out of the market. Couple this with our decreasing rental vacancy rates; we could see a situation where those who can’t afford to buy are suddenly facing steep increases in rent.”

Lamond explains the reduction in amortization roughly equates to an increase in mortgage rates of about 0.9 per cent (assuming a five-year fixed mortgage rate of 3.3 per cent on a $290,000 mortgage, after a 20 per-cent down payment on an average home).

Beyond buying and refinancing, the cooling effect new mortgage rules potentially could have on the housing market may negatively impact the wider economy.

“We have been hearing the growing buzz of construction in a number of communities around the Interior,” says Lamond. “A lot of people rely on this industry for their livelihood. If we dampen the growth in this sector, we could see significant flow-on effects such as declining investment and more limited job opportunities.”

About Valley First

Valley First is a division of First West Credit Union, B.C.'s third-largest credit union, which has 39 branches and 28 insurance offices throughout the Lower Mainland, Fraser Valley, Kitimat and Okanagan, Similkameen and Thompson valleys. Led by Launi Skinner, First West has $7.7 billion in assets under administration, more than 177,000 members and close to 1,300 employees.

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