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Changes to the Rules for Gov'ernment Insurance Mortgages

Blog by Marites Kliem | January 18th, 2011

Thanks to my friends at RBC, we've put together a concise explanation of the latest changes with government insured mortgages:

Changes to the Rules for Government Insured Mortgages


Since October 2009, the Government of Canada has been systematically tightening mortgage financing regulations for all federally regulated lenders.  The changes have been made in order to ensure that Canadians are prepared for higher interest rates in the future by not taking on too much debt, which will improve the stability of Canada's housing market.

On January 17, 2011, Federal Finance Minister Jim Flaherty announced additional changes to the rules for government insured mortgages.  

We want to be sure you understand the changes and how they might affect your clients' home financing options. Three new measures that have been announced are as follows:

New Guidelines – Effective March 18th 2011

1) Lowering the maximum amount consumers can borrow     when refinancing their home

This change will lower the maximum mortgage amount for refinances to 85% of the appraised value of the property from the current 90%. This change will help to promote savings in homeownership and ensure that homeowners don’t become overextended by using all the equity they have built up in their home when refinancing.

2)  Reducing the maximum amortization period for new government insured (default insured) mortgages

The maximum amortization for all new default insured mortgages will be reduced to 30 years from the current 35 years. This change will help reduce total borrowing costs for consumers, helping them to build up equity more quickly.

As an example, a $300,000 mortgage with a 4.5% interest rate and an amortization of 35 years has a monthly payment of $1412.05 and total interest cost of $293,059.17 over the life of the mortgage. The same mortgage with a 30 year amortization has a monthly payment of $1512.65 but total interest cost reduces to $244,551.49. The difference of roughly $100 a month in monthly payment reduces the interest cost by almost $50,000 over the life of the mortgage.

New Guideline - Effective April 18th 2011

3) Withdrawing government insurance backing on lines of credit secured by homes

Home equity lines of credit generally offer a variable interest rate and often have no repayment terms associated with them, which exposes borrowers to an increase in interest costs should interest rates as expected. Due to an increase in the household debt associated with these loans, the federal government wants to limit the amount of equity for which these loans can be granted

Loans that have repayment terms associated with them will still be eligible for default insurance.


If you have any questions about how this could affect your situation, please don't hesitate to call.