Pre-Construction Condos & New Mortgage Rule Changes
The following is a Guest post by one of TalkCondo’s favourite mortgage brokers – Christopher Molder, a second generation Toronto mortgage broker who helps run his family’s Mortgage Centre franchise on the Danforth in Toronto. With over 35 years of mortgage experience behind him he enjoys passing on the knowledge his father taught him about personal finance and mortgages. If you have a question about mortgages or would like to learn more you can reach Christopher through his mortgage blog http://www.sonofabroker.com.
The news has been buzzing with Ottawa’s new mortgage rules that come into play on July 9th. The rules were brought in to slow down what many saw as a real estate market heating up too fast and concern over Canadian household debt. Will the rules affect you? Probably. Existing homeowners who need to refinance to first time homebuyers will be affected by the mortgage rule changes. And even if you purchased a pre-construction condo, and were pre-approved, these changes may still affect you.
2 Mortgage Changes Impacting First Time Buyers
1. The maximum amortization allowed to qualify for a high ratio mortgage changed from 30 years to 25 years. That means that if you are buying a home with less than a 20% down payment your mortgage will be qualified based on a 25 year amortization. Translation: you qualify for less mortgage money.
2. New debt to income ratios: the calculation used by lenders to determine exactly how much money you can borrow, is being tightened.
With these changes homebuyers will qualify for roughly 15% less mortgage money. Not a big deal you if you aren’t stretching yourself to the maximum but the vast majority of first time Canadian home buyers usually need to stretch to get into markets like Toronto and Vancouver.
What If You Purchased A Pre-Construction Condo?
If you are waiting for delivery of your condo here are 3 things to keep in mind:
1. Only borrowers purchasing with less than 20% down payment and who require mortgage insurance will be affected by the rule. Keep in mind deposit and down payment are two different things. If the builder requires only 5% deposit you can still purchase with 20% down payment at closing.
2. If you have 20% or more for the down payment you can still qualify for your mortgage based on a 30-year amortization.
3. If you have been pre-approved for your purchase you must close by December 31st, 2012 otherwise the new rules will impact your mortgage qualification.
If you have any further questions, we encourage you to contact Christopher Molder through his website, Son of a Broker.
