New Mortgage Rules – Part 3

For those that heard the news this week, Finance Minister Flaherty decided to make some more changes to “cool” the housing market.  At first glance this got a lot of press but when I really looked at it and considered the impact in our Winnipeg market, this will likely affect 2 – 3% of people with or looking for a mortgage.

Those most affected will be first time home buyers looking to purchase at the maximum of the range they can afford.  These people may be left with no options other than a 5 year term to qualify.  Let me explain, today if you wanted a variable rate mortgage or a term less than 5 years for a $200K mortgage, your qualifying payment would be $1090.  If the same consumer on a $200K mortgage, decides to take a 5 year mortgage, their qualifying paymnet would be $910, a difference of $180.  On a $300K mortggage, the difference is $269.  These amounts are due to the fact that amortizations have been reduced from 35 years to 30 years(only for those with less than 20% down payment)  For those purchasing in a hot market like Winnipeg with less than 20% down payment, you need to be aware of all these changes and how it will impact your purchasing power.   The importance of a proper pre approval is even more important when you are competing against other home buyers.  If you don’t have a proper preapproval, you may end up falling in love with a home only to find out you don’t qualify in the end.  I have seen this too much when consumers are pre qualified at the bank.  In essence the bank doesn’t obtain the information and documentation necessary to help the consumer and instead gives them an large amount that they don’t necessary qualify for.  An Accredited Mortgage Professional will work with you to make sure you have no surprises or disappointments.

These rules come into affect on March 18, 2011.  Please contact me if you require further clarification.

Let’s hope that future government intervention applies to credit cards and unsecured lines of credit.  Home purchase is very stringent and structured with documentation and qualification standards however, credit cards do not require the same type of standards.  Once a consumer moves into their house, assuming they qualify at the maximum amount, they can go out and obtain thousands in additional credit card limits and all they would need is a good credit score to qualify.  How can that be responsible?  If the government is really trying to protect consumers from themselves, let’s look at credit card debt next time.

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