Segments from Paul Vieira, Financial Post · Monday, Jan. 17, 2011

OTTAWA — Finance Minister Jim Flaherty unveiled changes Monday morning to mortgage lending rules that would see Ottawa stop backing home loans greater than 30 years and make it more difficult for households to use their property to access financing.

The key change announced is that mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years.

Also, Mr. Flaherty lowered the maximum amount Canadians can borrow against the value of their homes, to 85% from 90%, on a refinancing; and removed federal government backing for home equity lines of credit, or so-called HELOCs, (Home Equity Lines of Credit) whose popularity soared in the past decade with growth double that of mortgage debt.

The changes will be implemented in stages, with adjustments on amortization and refinancing limits coming into force on March 18. Government backing on HELOCs will be removed as of April 18.

The government said exceptions would be allowed after the new measures come into force when needed to satisfy a home purchase or sale and financing agreement struck before the March and April in-force dates.

The minimum down payment, at 5%, will remain as is. Further, there are no plans to target condominium purchases by requiring monthly condo fees be added to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage.

In February of 2010, Mr. Flaherty moved to toughen up the mortgage rules amid worries that Canada was in the midst of a housing market bubble. The reforms, since introduced, compelled borrowers to meet standards for a five-year fixed-rate mortgage, even if the buyer wanted a shorter-term. Variable rate loan; reduced the amount Canadian can borrow against their home, to 90% of the property value from 95%; and require purchasers of rental properties to issue a 20% down payment as opposed to 5%. The moves played a role, observers say, in slowing down real estate activity.

The Bank of Canada recently warned debt levels are growing faster than income, and the risk posed by consumer indebtedness to the domestic economy would continue to escalate without a “significant change” in how consumers borrow and banks lend.

Monday, June 13, 2011       7:00 pm – 9:00 pm

Come to the Glenridge location the second Monday of every month to get any of your financial questions answered (budgeting, debt, etc.) and take advantage of our free financial coaching. DROP-INS WELCOME or *CALL TO RESERVE YOUR SEAT TODAY.

Location:  Southridge Community Church Glenridge location

201 Glenridge Ave. St. Catharines L2T 3J6
Tel. 905 682 9901 ·  Email personalfinance@southridge.cc

‘BRIDGE FINANCE’ may be required when timing is an issue caused by closing dates that do not match.

Examples: if your closing date of the home that you are selling and the moving date of the home that you are buying are not on the same date (as in cases of relocation). Another scenario is when the sale of ‘other homes’ becomes involved causing a ripple-effect or ‘chain-effect’. In fact, quite often it’s simply a matter that the home buyers want to take possession of the home they have purchased prior to the closing of their own home sale so that they can perform renovations or painting before moving into it.

With a “firm” sale of your home you can usually “borrow against the sale” of your home which is referred to as bridge financing or obtaining bridge loans. The bridge finance funds are advanced and then paid back once the sale of your own home closes on the later date. This finance is replaced by the new and “final” mortgage arranged.

Requirement: *In arranging bridge finance, it is important to provide your mortgage agent upfront both complete copies of accepted/firm Offer to Purchase and Sale Agreement with all Waivers/Fulfillment Schedules – signed by all parties.

The bridge loan amount required to close the transaction is determined by taking the sale price of the home you are selling and deducting the costs to pay off all current mortgages or secured lines of credit (including any prepayment penalties), real estate agent commissions for selling the home, and legal fees for the lawyer to complete the sale transaction. This net figure then becomes the basis for the bridge loan.

The cost of bridging varies with lenders and is based on mortgage interest cost per day(s) required; and is similar to the cost to borrow on regular mortgage loans. There may also be a set up fee (typically around $200 to $250).  The overall cost factor is usually outweighed by the convenience and benefits giving the ability to close the transaction on time. For the small cost and time involved in obtaining bridge financing upfront, it is well worth it!

Contact me today to arrange your finance

ddunkley@dominionlending.ca