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The federal government recently announced changes to the mortgage rules for government-backed insured mortgages. These new rules will apply to Canadians who have less then 20% of the purchase price as a down payment. The changes are effective July 9, 2012.

Highlights of these new mortgage rules are:

  • The maximum amortization period for a mortgage is being reduced from 30 years to 25 years. In 2011, the maximum amortization was reduced from 35 years to 30 years.
  • The maximum amount that Canadians can borrow when they refinance their houses is being reduced from 85% to 80%.
  • In order to qualify for a mortgage, the maximum gross debt service ratio is being set at 39% and maximum total debt ratio is being set at 44%.
  • House purchasers are still going to be required to have a minimum 5% down payment in order to get a traditional government backed insured mortgage.

Why the Canadian mortgage rquirements were changed

The government has brought in these measures, because they are very concerned with the debt levels that Canadians are carrying. The debt-to-disposable-income ratio for Canadians increased to 152% in the first quarter of 2012. This means that, on average, for every $1 a person makes they owe $1.52. These debt levels are not sustainable.

In order to get their finances in order, Canadians need to take immediate steps to deal with their debt. Bankruptcy Trustees are the only people in Canada licensed by the Federal Government to offer Consumer Proposals – a way to keep your house and other assets, while drastically reducing your unsecured debt, often reducing it by as much as 80%. The first meeting with A. Farber & Partners is free.

More on how these rules will affect Canadians in future blog postings.

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