Trying to Preserve Our Real Estate Utopia
We are the envy of the world. We have a stable government, solid economy, peaceful culture, and the Toronto condo market is the biggest and best in North America. Unfortunately the US is still a total gong show and continues to threaten to drag us and the rest of the free world down. The government is trying their best to preserve our little ‘Real Estate Utopia’ by cooling down our market using artificial means-anything other than raising interest rates (the easiest, and most obvious solution).
The news out this morning is that 3 changes to mortgage rules are going to take place:
- Reduce the maximum amortization period from 35 to 30 years for government insured mortgages (mortgages with loan to value ratios higher than 80%/mortgages where clients are putting less than 20% down). This new rule goes into effect on March 18th.
- Reduce the loan to value ratio for refinances from a max 90% to 85%. This new rule goes into effect on March 18th.
- Withdraw government insurance backing on lines of credit secured by homes. This new rule goes into effect April 18th
These changes will not impact the overall market very much but they are aimed at shaving off some of the ‘froth’ from the market – borderline buyers will be shut out, and all buyers who were thinking about a 35 yr amortization will have to scale back their purchasing plans based on the new 30 year max. The new rule does not apply to buyers who put down 20% or more, so investors can still buy and amortize their mortgages over 35 years (which many choose to do to get positive cash flow on their properties).
Questions or comments? Please contact me.
Side note: I’m glad they did not go with the idea that was being thrown around last week to put 100% of the condo fees in the mortgage calculations for condo buyers. On the surface, the 100% condo fee idea seems sound, but it’s flawed. Condo fees include the built-in costs of building maintenance and upkeep as well as utility costs (for the building and usually for the suite itself) and insurance. Houses also have maintenance, upkeep, utility costs and insurance, but these are NOT included in the mortgage qualification calculations. There is a myth that owning a house is cheaper than owning a condo. That’s BS! One single repair to a house can amount to a year’s worth of condo maintenance fees or more-especially in the core of the city where most houses are 60+ years old. Owning a condo is expensive, owning a house is very expensive!
