Changes in Mortgages

The continuing mortgage problem in the US is not news to anyone. More foreclosures and dropping home values continue to make headlines. While Canadian consumers are not immune to what’s happening south of the border we have felt less of a shock. Much of that has to do with Canadian lending practices. Late last year it was announced that Canadians would be able to amortize their mortgages over 40 years. Longer amortization periods are really meant for only a few specific circumstances. These longer-term mortgages are best suited to individuals who have little money in the short term but have excellent earning prospects (see our April, 2008 newsletter).

At the outset, the Bank of Canada was wary of the 40-year amortization period and came out in the media to discourage their use. Given the continued decline in the US and the changes in our own housing market and economy, the Canadian Government has gone from discouraging these mortgages to removing them from the marketplace.

On July 9, 2008, The Honourable Jim Flaherty, Minister of Finance announced new measures that protect the long-term stability of our housing market and encourage saving through home ownership. These measures will also reduce the risk of us developing a housing issue similar to what is happening in the US.

The new measures include:

A maximum amortization period for new government-backed insured mortgage of 35 years (effective October 15, 2008); a minimum down payment of at least five percent for new government-backed insured mortgages; and a consistent minimum credit score requirement (to be determined).

The Credit Union has suspended offering 40 year amortization periods. The suspension does not affect any member with an existing mortgage or those members who have a pre-approval closing before October 15, 2008.