The Federal Government recently made some important changes to the mortgage rules for government-backed insured mortgages. These rules apply to Canadians who put down less than a 20% down payment. The new rules became law in July of 2012.
How will these new rules affect you as a potential home buyer? First, the maximum amortization period of a mortgage has been reduced from 30 years down to 25 years. Secondly, for existing homeowners, the maximum amount that can be borrowed to refinance a home drops from 85% to 80%. The practical aspect of these two changes is that your monthly mortgage payments will rise significantly.
And for you to even qualify for a mortgage, you will need to keep your maximum debt to income ratio (the total amount of ALL your debts, including your mortgage) at 44% or lower. If your ratio is too high, you will automatically fail to qualify for the mortgage you want.
So if your debt level makes it more difficult to get that new mortgage, you must reduce your debt BEFORE you apply for that mortgage. The smart way to do so is by offering a Consumer Proposal to your creditors through a Proposal Administrator.
Consumer Proposals allows you to clear up your current unsecured debt, by settling with your creditors for a small percentage of what you actually owe them. You stretch your payments over a multi-year period to make them manageable, and once you complete your Consumer Proposal, you will be debt-free. You can then proceed to finalize your mortgage, and purchase your new home – without worrying about hitting that maximum debt ceiling the government has imposed with its new rules.
Please contact us at A. Farber & Partners today to schedule a debt consultation. We can sit down with you and explain this powerful strategy to you. Our first meeting is free of charge and provides you with a no-obligation review of your financial situation. This way we can help you manage your existing debt – allowing you to prepare for a brighter financial future.
(And if you are a mortgage broker looking for ways to assist your clients with that new home they want by qualifying for a competitive mortgage rate, please also contact us. We would be pleased to explain how we can help you guide your clients to the purchase of their very own home.)