Starting on July 9th, the maximum amortization period for a new mortgage will be 25 years, down from 30 (only if it’s insured by CMHC.) This is a measure introduced by our finance minister to cool the housing market. This works because if someone wanted to buy a home today with a $300,000 mortgage, they can pay it off at $1512 a month in 30 years. But once the amortization rules change to 25 years, they have to make larger payments, ($1660 a month) in order to pay off the debt in a shorter period of time. Not a big difference, but it might be enough to make some people think twice about buying that home. For potential buyers who could afford a $300,000 mortgage today, might have to settle with something cheaper starting next month. I predict real estate prices will drop a little bit from July to September this year.
This is welcomed news for many in the economy. A lot of workers are really relieved because instead of raising interest rates to combat housing prices like the government usually does, this move does not hurt anyone working in the export or manufacturing sector. Landlords will also like these new changes. Since it will be more difficult to finance a home, people who are currently renting but are saving to buy their own place will need to save even more money for a downpayment before buying the home they want. This is also great news for home buyers who were planning to finance their mortgage for 25 years or less anyway. It will lower the prices of homes without affecting their original plan at all ^_^;. Some people think if you can’t pay off a mortgage in 25 years then you probably shouldn’t buy it in the first place (I don’t agree with that saying though.)
I’m not a big fan of this change myself. It limits my choices so I can’t choose between 25 or 30 years anymore. But I understand why they thought these new rules will be good for the economy. I personally don’t think we’re in a real estate bubble and prices are going to crash. But I know a lot of people will disagree with me when they see houses like the one below selling for over $2.5 million :).
edit post: As B-Plus kindly mentioned below, if your mortgage is not insured by CMHC then these new rules don’t apply to you. For more info about your personal situation please ask your lender, bank, broker, etc :).
Random Useless Fact: According to names.whitepages.com there are dozens of people in the United States (as of February 2011) with the first name “LOL“.