If you are planning to buy a home soon, here are a few things you should know about the federal government's new mortgage rules, which come into effect on October 15, 2008.
1. The maximum time allowed to pay off a mortgage (the amortization period) is now 35 years. Prior to October 15, it was 40 years.
2. Homebuyers now must make a minimum down payment of at least 5% of the purchase price of the home. Previously, it was possible to borrow 100% of the purchase price.
3. The new rules only apply to high-ratio mortgages, i.e. where the homebuyer makes a down payment of less than 20% of the purchase price. In Canada, these mortgages require the homebuyer to obtain mortgage default insurance.
4. Individuals who already hold mortgages with 40-year amortizations and/or down payments of less than 5% are not affected by these changes.
5. Historically, the majority of homebuyers who chose a 40-year mortgage also qualified for shorter amortization periods such as 20, 30 or 35 years.
Talk to your mortgage professional about the mortgage option that is right for you. For more information about the government's new mortgage rules and for additional tips, tools and information on the homebuying process, visit Homeownership.ca today.