First time home buyers or those with moderate household incomes are often drawn to townhomes like these at The Gate in Black Mountain. But can they afford them?

Reducing the Maximum Amortization Period from 35 years to 30 years.

On January 17, for the second time in less than one year, the federal government tightened rules around mortgage financing amid growing concerns about how much personal debt Canadians are taking on – a move that will certainly have an impact on the real estate market.  The government is reducing the maximum amortization period for government-backed mortgages to 30 years from 35 years.

PRESS RELEASE:  The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market

So, alot of folks in my line of work jumped on this news, spreading various articles on the subject around via email, twitter, facebook.   I found it disappointing that so many just kept retweeting, sharing or forwarding the same stuff around… without taking any time to weigh in on how the changes might affect regular folks here in Kelowna.   So, with some help from my good buddy, Kelowna Mortgage Specialist, John Antle, here are my thoughts regarding the changes.

Challenges facing Kelowna homeowners

There’s no question the changes will affect certain buyer groups – namely first time buyers, moderate income earners or those saddled with some debt.

So, let’s say you are a first time home buyer looking to purchase real estate in Kelowna in 2011.   Assuming you are pre-approved for a moderate $335,000 mortgage at 3.99% over 35-years, a townhouse at the Mission Group’s Dwell in mid-town Kelowna might be a good fit – three bedrooms and two bathrooms priced today at $335,900.  Or perhaps Troika’s The Gate at Black Mountain, a three bedroom, three bathroom for about $324,900 at today’s prices.

Buy today and you have yourself a very nice, new townhome.

Wait until after March 18th, 2011 and a few things could happen.

  1. A 30-year amortization period will reduce your qualifying amount from $335,000 to about $302,000 (based on approximately $50,000 household income), so technically, you can no longer afford/ qualify for anything higher. You will have to either save a larger deposit or increase your household income to return to the $335,000 mortgage today.  Now instead of a new three bedroom townhome at Dwell or The Gate, you may be looking at a two bedroom instead at The Gate or Dwell or an older townhome or condo.
  2. If housing prices increase this spring, your purchasing power could be further diminished.
  3. Interest rate fluctuation will again alter your purchasing power.
  4. Alternatively, if you are still able to qualify for the $335,000 mortgage you will find yourself paying approximately $111 more per month for the same home.

The Big Picture

Despite setting some folks back a bit in their purchase plans for 2011, these new regulations have been designed to protect average Canadians.  Some of the reasons why the feds are implementing these changes include;

  1. The development of a more stable, financially secure economy by ensuring Canadians do not stretch their budget to the point of collapse, bankruptcy or foreclosure.
  2. Having a 30 year amortization versus a 35 year will actually save the consumer money in interest over the mortgage.
  3. A 30 year amortization allows you to pay off your mortgage quicker.
  4. You actually save a .20 percent surcharge fee that CMHC added to a 35 year amortization for high ratio mortgages.

Right now is a great time to purchase real estate due to lower home prices, low interest rates, the option to go up to a 35 year amortization  and a lot of choice out there in the Kelowna real estate market.  As always, we’d be happy to help!

Darcy

Kelowna Real Estate Pros