The New Mortgage rules for both the U.S and Canada in 2011
Don't pack your bags too soon because it appears mortgages rules in the U.S. are changing too — mortgage interest will no longer be tax deductible. Estimates are that in the U.S. $100 billion of tax "leakage" is taking place each year by allowing Americans to deduct the interest paid on their mortgages. As early as this year, President Obama is planning on mirroring the policies in Canada and other countries, where if mortgages are used for investment purposes only, then mortgage interest will be allowed to be deducted. Congress wants to encourage greater domestic investment by Americans in order to create a stable and sustainable economic future. Congress has made many references about the success of such strategies in other countries, and in particular the "Smith Manoeuvre" here in Canada.
By now, you have heard that Canada's Finance Minister, Jim Flaherty, has initiated further changes in the mortgage industry that will take effect March 18, 2011. This is an effort to reduce the exposure consumers have to household debt, based on recent statistics.
Firstly, the maximum amortization period will decrease from 35 years to 30 years for government backed mortgages (when buyers have less than 20% down payment). This should only increase a typical monthly mortgage payment by about $35-$40 per $100,000 borrowed, when comparing a 35 to 30 year amortization.
Second, Flaherty has announced he will decrease the maximum amount you can refinance against your home, from 90% to 85%. This may impact consumers looking to consolidate debt or take equity out for investment.
Lastly, he is withdrawing government insurance on lines of credit, secured against homes – which were previously allowed up to 90% loan to value. This product is not widely used (due to the insurance premium applied to a product one may, or may not use), and as a result, should not affect the market by very much (secured credit lines will still be available to 80% LTV)
The positives out of this are that these changes may have led, and continue to lead, the Bank of Canada (BoC) to keep interest rates low for a while (today's BoC announcement confirmed NO prime rate change, leaving Variable Rate Mortgages and Credit Lines untouched!). Also, obviously, a more responsible lending and borrowing environment.
However, some will feel this tightening may reduce financial flexibility in the short run, and potentially flatten the upcoming spring real estate market.
So, at the present, we've been given about 2 months before the changes take place...anyone looking to refinance, or purchase a home should consider this short window of opportunity to firm up any plans they may have. We have yet to hear how this may or may not affect conventional mortgage lending (consumers buying or refinancing with 20% or MORE equity), but should know, and will advise, in the near future.
For further details you can visit his website at
Toni and George