Some changes that will come into effect on July 9, 2012. How will this affect homebuyers or home owners in terms of dollar amounts… Heres a quick snapshot below;
Payments based on a 25 year amortization vs a 30 year amortization would cost the borrower a difference of $52.48 per month per 100K in mortgage. In terms of borrowing power the homeowner that could buy a home for $300k would now only be able to afford a $266K home, a difference of approximately $34k based on the above changes from 30 year amortization to 25 year. If your in the market for a mortgage or a refinance, I would consider firming those details up before July 9, 2012 to take advantage of our current options.
READ ON; After speaking in Halifax just hours after Finance Minister Jim Flaherty announced a series of changes that come into effect next month, Mr. Carney reiterated his concerns about the effects that his ultra-low interest rates have had on the behaviour of both borrowers and lenders, warning the economy cannot “depend indefinitely” on debt-fuelled spending, especially as incomes stagnate.
At the same time, Europe’s growing crisis is expected to keep the central bank on hold for a long time yet, leaving regulation as the only real avenue for reining in housing-related investment, which Mr. Carney said now makes up “an unusually elevated share” of the economy.
“In this context, Canadian authorities are co-operating closely to monitor the financial situation of the household sector, and are responding appropriately,” Mr. Carney, who was almost certainly involved in Mr. Flaherty’s decision, said in a speech to the Atlantic Institute for Market Studies.
“Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses.”
Last week, Mr. Carney and his policy team warned that Europe’s worsening drama could slam Canada with a “major shock” if it is allowed to spread out of control and further infect healthier regions, particularly the still-fragile U.S. economy. They also warned that more Canadian households could find themselves under water with their debt payments if a big unemployment shock were to result, and sharpened their warnings about Toronto’s booming condo market.
Some investors are betting that the situation in Europe and the failure of the U.S. economy to gain more traction could force the central bank to cut interest rates from the current 1-per cent level sometime later this year. However, in his speech, Mr. Carney strongly hinted that he is not even considering a reduction in rates, echoing much of the language on the economy from his last interest-rate statement on June 5, indicating his domestic outlook hasn’t shifted much since then.
“Despite these ongoing global headwinds, the Canadian economy continues to grow with an underlying momentum consistent with the gradual absorption of the remaining small degree of economic slack,” said Mr. Carney, whose next decision is scheduled for mid-July. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”
Still, Mr. Carney left himself the same wiggle room from recent statements, saying that the “timing and degree” of any rate hikes would depend on how things play out.
There’s good reason for him to be cagey, and not just outside of Canada’s borders. Despite the worries about consumers over-borrowing, recent economic data suggest the housing market is already slowing down, and a report from Statistics Canada today showed that in April, retail sales fell – both in terms of prices and volumes.
Some analysts have already warned that the mortgage moves could be too effective and spark a slowdown in a key area of strength before the economy is ready for it.
Earlier Thursday, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years, and will cut the maximum amount of equity homeowners can take out of their homes in a refinancing to 80 per cent from 85 per cent. Also, the availability of government-backed mortgages will be limited to homes with a purchase price of less than $1-million, and the maximum gross debt service ratio will be fixed at 39 per cent, and the maximum total debt service ratio at 44 per cent. All the changes will take effect on July 9.
Mr. Carney’s speech, meanwhile, was largely a re-hash of his views on what is needed to foster the more balanced and sustainable global economy on which export-heavy Canada’s fortunes largely depend, including an “open, resilient” financial system. The central banker, who is also chairman of the Group of 20-linked Financial Stability Board, again warned against delaying the implementation of reforms designed to make international finance safer for the global economy.
“The current intensification of the euro crisis has only sharpened our resolve,” he said, adding that a system that restores confidence will need to “rebalance” the relationship between government regulation and financial markets, and in which policy makers realize they must help do what’s good for the world rather than taking a simply national approach.