New Changes to the Mortgage Rules. What do they mean to you??

Finance Minister Jim Flaherty, shown addressing reporters during a news conference last week, on Monday outlined several changes to mortgage lending rules. (Jeff McIntosh/Canadian Press)

Federal Finance Minister Jim Flaherty announced tighter mortgage rules on Monday to address concerns over high Canadian household debt.

"In 2008 and again in 2010, our government acted to protect and strengthen the Canadian housing market," Flaherty told a news conference in Ottawa. "We continue to do so today."

Flaherty unveiled three main changes:

• The maximum amortization period for a government-insured mortgage was lowered from 35 to 30 years.
• The upper limit that Canadians can borrow against their home equity was lowered from 90 per cent to 85 per cent.
• Government insurance backing on home equity lines of credit, or HELOCs, has been removed.

The first change is likely to have the largest impact. Buyers who purchase a home with a down payment less than 20 per cent of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation.

Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada.

After companies began insuring mortgages of 40 years or more, Ottawa set the limit at 35 years in 2008 before Monday's move lowered it to 30.

Aims to stem tide on consumer debt

"This measure will significantly reduce the total interest payments for Canadian homeowners," Flaherty said.

He was referring to the fact that anyone taking a longer amortization on a mortgage would pay much more in interest over time.

Under current rules, a five per cent, 35-year mortgage would have a monthly cost of $1,514. When the new rules come in on March 18, a 30-year mortgage at five per cent will have a monthly payment of $1,610 — a $96 difference per month, but over the life of the mortgage, that adds up to $56,139 in savings.

Flaherty pitched the lowering of the amount that can be borrowed against home equity to 85 per cent as a move to ensure Canadians retain more equity in their homes.

"This will promote saving through home ownership and limit repackaging consumer debt into mortgages," he said.

The final change, to remove government insurance on HELOCs, came as a result of Ottawa's concern that certain financial institutions were allowing homeowners to roll too many consumer purchases into CMHC-insured mortgages.

"I think that's particularly risky because some of those loans are not used to create housing. They're used to buys boats, and cars and big-screen televisions," Flaherty said. "That's not the business that home insurance was designed for."

Snow-topped houses for sale in Calgary. Ottawa moved on Monday to lower the maximum amortization period for mortgages. (CBC)

While Flaherty called the changes "moderate," they did not include an increase to the five per cent minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week that would have required 100 per cent of condo fees to be included in the list of expenses that are measured against income when financial firms consider a mortgage candidate. Currently, only 50 per cent must be included.

Watchers reacted largely positively to the news.

"The speculation had been that tighter mortgage insurance rules would be included in the upcoming federal budget," BMO economist Michael Gregory noted.

But with speculation that the budget might trigger an election, the Conservative government clearly thought the issue was important enough to bring forward before a budget document that might never get passed, Gregory said.

"For the new homebuyer, the reduced amortization is a significant change that should soften the demand for homes/mortgages below what they otherwise would have been."

The head the Canadian Association of Accredited Mortgage Professionals said the changes should help to increase equity in homes and ease fears about growing consumer debt levels.

But Jim Murphy said his association had suggested that Ottawa tighten qualification standards for 35-year mortgages, rather than abolishing them altogether.

Still, he is happy the government did not raise minimum down payment levels, which he said could have stalled the housing market. Murphy said the rule changes will likely spark a rush of buyers into the housing market before March and will pull more sales into the first part of the year.

The changes also come following recent warnings from the Bank of Canada on household debt levels.

In December, bank governor Mark Carney cautioned Canadian households and businesses not to be lulled by current low interest rates, because repercussions from a hike could be swift.

Rates 'will rise'

"While rates are low by historical standards, they eventually will rise," Flaherty said Monday. He dismissed the notion that the announcement was timed to precede the bank's next decision on interest rates, which are set to be revealed Tuesday.

"The particular timing today is not related to the interest rate announcement," Flaherty said. "The governor and I speak regularly, and we discuss these types of issues [and] we make an effort to make sure government policy complements the Bank of Canada's monetary policy."

Last week, Agathe Côté, a deputy governor at the bank, told a Kingston, Ont., audience that a sudden weakening in the Canadian housing sector could affect other areas of the economy given the high debt loads of some households.

If that shock hits, Canadians would be expected to cut back on their spending, she said.

Flaherty's announcement is the second time in three years that the government has clamped down on mortgage rules. In 2008, the government brought in several alterations, including:

• Cutting the maximum amortization period to 35 years from 40.
• Requiring a minimum down payment of five per cent.
• Establishing a requirement for a consistent minimum credit score.
• Introducing new loan-documentation standards.

To Understand this better come se me at White House Mortgages. Call 250.826.5697 or Visit my site at for much more mortgage information and the best rates at www.bradadams.ca

Read more: http://www.cbc.ca/consumer/story/2011/01/17/flaherty-mortgage-changes.html#ixzz1BK6f0xqk

How to Double Your Savings Rate in 2011

At the website MyLifeList.org, where people share their goals, some of the most popular, life-changing goals include becoming financially independent, buying a first home, and starting a business. All of those dreams take money, which is why we rounded up the best advice from financial experts on how to double your savings rate in the New Year. Here are their top ten suggestions:

1) Create a personal net worth statement. You don't have to be a millionaire to calculate your "net worth," says Tami Peter of Bottomless Closet NYC, which helps disadvantaged women with their money and careers. Simply make a list of everything you own, including bank accounts, investments, cars and real estate. Then, subtract any debt, including a mortgage and credit card debt. The number you come up with is your personal net worth. Knowing what it is can help motivate you to slowly increase it and give you insight into your overall financial health.

2) Print out your monthly checking account and credit card statements. Peter says that there's something about seeing spending in black and white that opens our eyes to our habits. "It's easy to see the money spent on frivolous items and things we don't use," she says. Many banks now offer free software through customers' online accounts that can automatically track spending and categorize where money is going.

3) Make a plan to change your habits. Justin Sinnott, a financial consultant in Charles Schwab's Seattle branch, says that after reviewing your finances, it's time to decide what you want to shift. For example, if you don't already have enough money saved to fund a three to six month emergency fund, that's a top priority. The Schwab website offers a free monthly budgeting tool that helps classify spending into necessities such as loans and housing and luxuries such as entertainment and restaurant meals.

4) Live well below your means. This simple concept is really the key to saving significant amounts of money. It might mean living in a smaller home, waiting to upgrade your cell phone, and cooking at home every day of the week, but as long as you live a lifestyle that's cheaper than the one you can actually afford, you can build financial security.

5) Write down how much you want to save by the end of the year. The simple act of writing down your savings goal helps keep it at the forefront of your mind. You can write it on a kitchen calendar, a daily planner pad, or on a website such as MyLifeList.org or 43things.com. You can even share it on Facebook and Twitter. The more people know about it, the more they can cheer you on.

6) Ramp up your savings into tax-advantaged accounts. Retirement accounts such as 401(k)s allow you not only to save more money that grows in a tax-advantaged account, but also to take advantage of any matching benefits offered by your employer. The website PaycheckCity.com, run by Symmetry Software, allows users to calculate their net pay after making changes to their pre-tax retirement savings.

7) Review your long-term investments and consider rebalancing. Long-term investments usually do best in low-fee, diversified portfolios that match your age and desired risk level. If you don't know what fees you are currently paying on your retirement accounts, ask your human resources office to help you find out. Since advisors recommend shifting into more conservative investments as we get closer to retirement, now is a good time to check in to see if it's time to rebalance your investments.

8) Stick with your investing plan, despite day-to-day market dips. Sinnott says that after you come up with a plan for your long-term savings and investments, it's important to avoid changing up those plans because of breaking news and other events. "Don't be de-railed by recent news without revisiting the big picture," he says.

9) Reduce your debt payments. Given the current low-interest rates, some people might benefit from refinancing, says Sinnott. You can also reduce your monthly bills by using some of your savings to pay off any high-interest rate debt, including credit card debt, auto loans, and student loans. Evaluate how much you are paying each month in interest payments to decide whether you should pay off loans early.

10) Make sure you have the right Mortgage. One of the biggest expenses of your life is the for roof over your head.  Whether it be rent or mortgage you must make sure to take charge of the portions you can control.  By being sure you have the right mortgage with the lowest rates and that is suitable to your situation.  By coming to see Brad Adams, your Kelowna Mortgage Broker,  you will know that you have the best loan and the best service.