People are still digesting the 2013 federal budget that Finance Minister Jim Flaherty and the Conservative government unveiled last week. And while there weren’t the drastic changes to mortgages that many thought it would include, the budget did outline that the government wants to start restricting the use of default mortgage insurance on low-ratio mortgages. But just what does that mean?
Currently if you can pay at least a 20 per cent down payment when you purchase property, you won’t have to pay hefty mortgage insurance fees, and you can have an amortization period as long as 30 years. If you have anything less than that 20 per cent, you are forced to pay mortgage insurance which can add thousands of dollars onto your mortgage every year. Without that 20 per cent, you’re also limited to just a 25 year amortization period.
Many people see many problems with this insurance, including the fact that because they’re backed by the federal government through CMHC, it’s the Canadian taxpayers that are on the hook for it should those borrowers default on their mortgages. Not to mention the fact that CMHC announced last year that it was about to hit its cap for the amount of mortgage insurance it was able to provide.
And that could be one reason why the government is going to start disallowing this type of insurance given to low-ratio mortgages, or rather, those that begin with the full 20 per cent down payment and therefore, don’t really need insurance in the first place.
Freeing up more room underneath that ceiling is definitely one reason why the government is going to start restricting this type of insurance. Plus, it will shield Ottawa from taking on even more risk, when it’s really not at all necessary that they do. In addition to this, forcing the banks to take on even more responsibility for even more loans will be an incentive to them to only take the most qualified mortgages – something the government is after greatly, now that they’re trying to reign in the amount of household debt.
While most mortgage changes are typically the brunt of high criticism by just about anyone in the opposing parties, it’s been widely stated throughout the industry that these changes announced within the budget were long overdue.
