New Mortgage Rules – Effective July 9, 2012

Here is an announcement from the federal government with changes to mortgage rules and an explanation of what it means for a buyer.

NEW MORTGAGE RULES TAKE EFFECT JULY 9, 2012
1. Reducing the maximum amortization period to 25 years from 30 years
2. Fixing the maximum gross debt service ratio at 39% and the maximum total debt service ratio at 44%

WHAT DOES THIS MEAN TO YOU, THE BUYER?

If you look at a mortgage amount of $200,000 at a current rate of 3.09%, the reduction in the amortization period by five years means an increase of $105 per month.

Additionally, if you are making $50,000 per year, the gross debt service ratio of 44% currently allows your monthly payments to be as high as $1,600. That would cover a mortgage up to $335,000. When the gross debt service ratio changes to 39%, your monthly payments cannot exceed $1,400 per month which would only cover a mortgage up to $290,000.