Last month Canada’s Finance Minister, Mr. Jim Flaherty, put new mortgage rules into place to help cool the Toronto and Vancouver real estate markets but how does this relate to Mississauga real estate? On the one hand it’s bad news but on the other it’s all good. When you take a look at the whole Canadian real estate picture these changes actually do make sense. Here’s why.
One of the big problems seen in the United States recently is the foreclosure fiasco where people across the country were losing their homes left, right and center. While there were many different causes, one of the biggest issues that contributed to this problem were the mortgages handed out to people that really couldn’t afford them. Since that time the mortgage industry in the United States has taken a new approach to handing out mortgages but for many people it’s too little too late.
Canada steps up
By introducing the new changes in mortgages there will be a stabilizing effect that will ripple through this country. Only people that can actually afford to take on a mortgage will be issued one. A type of affordability ratio has been put into place so that new homeowners will be able to afford the heating costs, property taxes and mortgage payments before them. This ratio is set at 44% for the total debt service, 39% for the gross debt service and is determined by household income.
The amortization period for a new mortgage has decreased from a maximum of 30 years down to 25. This will drive up the monthly mortgage payments so people will have to start looking at homes in a different price range.
Another change that came into effect is the maximum allowed for a home equity loan. This has also been reduced from 80% down to 65%. As well, the Canadian government has no plans on ensuring a home that is valued higher than $1 million. Homeowners that are looking for property in this price range will have to dig a little deeper and come up with a down payment of 20% or look for private insurance.
Although it’s a drastic move, these new changes should help to balance and stabilize the Mississauga real estate market over the next few years. It’s a plan that will help prevent the same thing from occurring in Canada as was seen in the US just a short time ago. While it may seem unpleasant and unpalatable right now, it’s a long-term plan to stabilize the market and hopefully positive effects will be seen soon.