Buying or refinancing a home this spring? Have you bought a home recently? 
If so, new mortgage rules may affect you.

The Minister of Finance recently announced changes to CMHC mortgage rules, coming into affect March 18, 2011, which could have a significant impact on your mortgage strategy. CMHC (Canada Mortgage and Housing Corporation) insures mortgages that require more than 80% financing, so these changes will mostly affect first time home buyers and those who leverage their home equity for debt consolidation or investment purposes.

Essentially, these changes will reduce the overall amount for which borrowers can qualify, as well as restrict the refinancing flexibility of current homeowners with less than 15% equity in their homes. The exact changes are as follows:

•The maximum amortization of CMHC insured mortgages will be reduced from 35 years to 30 years

•The maximum amount you can refinance a CMHC insured mortgage will be reduced from 90% loan-to-value to 85%

So what does this mean exactly? For a potential home buyer, if you have an annual household income of $60,000 you can currently qualify for a $312,000 purchase, using the 35 year amortization and 5% down payment. Under the new rules, because of the reduced amortization to 30 years, you will only be able to purchase a $289,000 property (a drop of $23,000 in purchasing power).

To afford that $312,000 property your annual household income will have to be $64,000 or higher. As you will know if you have been shopping houses in our area, homes under $300,000 are often significantly different than those above, and after March first time home buyers may be forced to compromise more in their property search.

For those who already own their home, these changes are going to impact your refinancing flexibility, reducing your ability to borrow equity back out of your home to consolidate other debts at a lower interest rate or use that equity for investing.

For example, if your home is worth $300,000.00 and your mortgage is currently $200,000.00, you have $100,000.00 equity in your home. Under the current rules you can refinance and increase your mortgage to $270,000.00, giving you $70,000 at a low interest rate to use for paying off higher interest debt (such as credit card balances or personal lines of credit) or to buy investments that will show a high interest return.

After March, you will only be able to obtain $55,000 from a refinance to use for these purposes. The reduction in amortization from 35 to 30 years will also make it more difficult to refinance, as it means more income will be required to qualify.

If you are buying a house this spring, or have been considering any changes to your mortgage, plan to take advantage of today’s lower rates or to consolidate higher interest debts, the best strategy to avoid being affected by these new CMHC rules is simply to get in touch with a mortgage professional immediately and get your deal underway. Deals that are set up now can still qualify under current CMHC rules.

Kevin Niemi is a Mortgage Consultant with Mackenzie Gartside & Associates, Verico Select Mortgage at #5-212 5th St. in Courtenay.