Reduced amortization period a good thing for Fraser Valley home buyers?

June 26, 2012 | By

As of July 9, 2012 it was announced that 30 yr amortization mortgages, will now be set at 25 years for those entering into the home-owners marketplace. The maximum refinance allowable will then be 80%, with no insured mortgages over $1,000,000 .

As part of the Government’s continuous efforts to strengthen Canada’s questionable housing finance system, the Minister of Finance announced seemingly never-ending adjustments to the rules for government-backed insured mortgages, stating: “Our Government stands behind the efforts of hard-working Canadian families to save by investing in their homes and their future. The adjustments we are making today will help them realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended. As just one example, the reductions to the maximum amortization period since 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage.”

With this announcement came four measures for new government-backed insured mortgages with loan-to-value ratios of more than 80%:

• By reducing the maximum amortization period to 25 years from 30 years, it was noted that this will reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner. The maximum amortization period was set at 35 years in 2008 and further reduced to 30 years in 2011.

• Also lowering the maximum amount Canadians can borrow when refinancing to 80% from 85% of the value of their homes. The idea is this will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes.

• The maximum gross debt will be fixed at 39%, and the maximum total debt service ratio at 44%. The hope is this will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.

• Lastly, limits will be placed on the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.

The Finance Ministers final thoughts were: “Investing in a home is a great way to save. That is the dream that mortgage insurance was intended to support. The measures we are taking today maintain that intended purpose.”

Whether you believe in that statement or not, the idea behind it is solid. I guess what we wrestle with here in the Lower Mainland, for families looking to purchase in the Langley, White Rock and Surrey areas, is the general cost of housing. Although the amortization might be going down, with prices remaining flat for the next few years, it’s important to consultant you real estate agent for advice on these changes. Your plans to purchase and “investing to save” is well worth discussing, and a knowledgeable agent can help make it a reality!

Filed in: Buying and Selling Real Estate

About the Author (Author Profile)

Andrew is a West Coast enthusiast through and through. He is a native of the area that you will often find adventuring on one of the many sea to sky activities that abound in the Fraser Valley. Along with being in love with the place he calls home, Andrew is a well known and respected Realtor focusing on helping others to find their own perfect home in Langley, Surrey, White Rock and beyond! Visit www.yourperfecthomebc.ca to find your perfect home.

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