Mortgage Rules Changed

[Thorin]

I got my mortgage in 2003.  The rules at the time were that you could amortize up to 25 years, had to have 5% down, and had to get CMHC insurance if you were borrowing more than 75% of the purchase price.  Your GDSR (gross debt service ratio; mortgage payment, property tax, heat, and half of condo fees if applicable) had to be 32% or less of your gross income.  Your TDSR (total debt service ratio; GDSR + all other regular payments) had to be 40% or less of your gross income.

2006 came along and the federal government substantially changed the rules to be more like the American system - this was mostly due to a big boom and lots of people wanting to buy houses but not able to qualify for the suddenly rising prices of houses.  Amortization max was changed to 40 years, you could buy with 0% down, CMHC insurance was required if you were borrowing more than 80% of the purchase price, GDSR went to 40% and TDSR went to 45%.

Meanwhile in the US people could get 50 year mortgages with 0% down and were allowed to set up payments that did not even pay the interest, thus allowing the mortgaged amount to increase past the purchase price of the house.

Late in 2008, as the US housing market crisis started taking hold, the federal government moved the max amortization back to 35 years.

In 2011, Canadians were proudly proclaiming that we weathered the giant recession with barely a blip, and that it was because our mortgage system was better regulated.  Possibly true, although that 40 year 0% downpayment mortgage that was allowed for a while there was flirting with disaster.  However, Canadian banks were never allowed to re-sell bad mortgages in slivers of bundles, and that probably helped.  Anyway, in 2011 the federal government lowered the max amortization to 30 years.

As of July this year, the federal government has changed the rules again, setting the max amortization at 25 years, leaving the min downpayment at 5%, requiring CMHC insurance if you borrow more than 80% of the purchase price, and moving the GDSR to 39% and the TDSR to 44%.

So we're almost back to the same rules as we were at six years ago, before the (same Harper) government started messing with the rules.  Except, of course, for house values; those are still 2 to 6 times as high (depending on where you live), while average income has increased only as much as inflation (1.2 times what it was six years ago).

As a side note, the rules were also changed for Home Equity Lines Of Credit (HELOCs - a revolving credit line with your house as collateral): banks can now only offer you a HELOC if it and your mortgage combined are 80% or less of the value of the home.  This used to be 85%.  I have no idea how it compares historically as I didn't keep track of HELOC rule changes over the years.

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I dunno if this interests anyone else, but I like knowing these kinds of details because that way when I go to the bank I know if what they're offering me is good or bad.

[Mr. Analog]

I found out as I was renegotiating, then the assessment came in low and I couldn't borrow against my mortgage to pay out my sister.

[Thorin]

Yeah, I remember that.  Sucks when you think you can do something but then the numbers don't quite line up.  Although that's stopped me from borrowing money against the house in the heyday of rising house prices (2007-2008) to buy a trailer...  Which would just make my mortgage that much higher, and have me have that much less equity.  It's bad enough as is.

You went 5 years on the special rate, right?  So are you planning to pay your sister out on the next renewal?  Or are you doing monthly payments to her now?  By your own advice from yesterday in the office, I hope you wrote down whatever agreement you came to

[Mr. Analog]

Yep, I got a great rate and in 4 years I'll be able to borrow against it when I renew again.