On July 9th, the Government of Canada announced some changes to the rules for government guaranteed mortgages:
– Reducing the maximum amortization period for new mortgages from 40 years to 35 years
– Requiring a minimum down payment of 5% for new government-backed mortgages (bye, bye zero down)
– the requirement to have had a consistent minimum credit score and,
– there will be new loan documentation requirements
These changes are to take effect on October 15th, 2008 and are obviously designed to reduce the risk of problems in Canada similar to the sub-prime crisis in the U.S. Existing pre-approvals will be honoured.
Personally, I think these are good measures and I was surprised when amortizations were increased to 40 years in the first place and when zero down came into play. Home ownership in Canada is at record levels with over two-thirds of Canadians owning their own homes and frankly, I don’t think these measures will change that.
For first time buyers striving to fulfill the dream of buying a home, that 5% is an achievable goal and, a 35 year amortization will be better for you in the long run (but 20 or 25 years are still better) when you consider the interest costs over the life of a mortgage. Less than 10% of people have a 40 year amortization and, for the average mortgage in Canada, the difference of five years will represent about $55.00 per month.
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