The big story is that those who are putting down less than 20% and therefore requiring CMHC insurance on your loan will no longer be able to amortize that loan for 35 years. The new maximum amortization period will be 30 years. This goes into effect March 18th, 2011.

How will this affect the market? Locally, it’s more likely to affect the first time home buyer than anyone else. In a place where the average 1bed condo costs $350,000 the buyer would need $70k to get around these rules. As many FTHB do not have $70k they will be stuck with a max amort of 30 years. Doing some simple math with a rate of 3% we find that at 35 years they looked at paying $384 for every $100k borrowed. At 30 years that same monthly affords only $91k. This is a 9% drop in affordability. That $350k condo that appealed to the FTHB with less than 20% down just lost a very large number of potential buyers and will either take longer to sell or be forced to come down in price by about 9%.

Other news involved in the rule changes affected mostly refinancings with Loan to Value dropping from 90% to 85% and HELOCs will no longer be insurable by the government. This will have a more chilling affect on homeowners who have stretched their credit cards to the max and look to refinance to get their interest rates from the abominable 19%+ many credit cards charge down to the 3% or so that a HELOC or home refi would afford. In other words the BOC (rightfully) thinks we Canadians have too much debt and we shouldn’t be using our homes as a piggy bank to buy 52″+ Plasma TVs at Costco.

We’ll have to wait and see what the end results are but I got to believe that the change in amort will have an initial rush effect as many try to beat the rule changes and then we’ll see a *bit* of a lull. What’s more interesting is how this affects the country nationally. Locally where FTHBs are stretched to afford a condo we’ll maybe *maybe* see a trickle up effect with move-up buyers finding some difficulty in selling their first condo as the buyers simply find it harder to get financing. Prices may end up coming down which then affects how much these move up buyers can afford.

It’s been quite a year of changes. The BOC has done well to effectively eliminate anyone requiring CMHC insurance on their loans. Investors, FTHBs, Move-up buyers needing a suite, and Refis have all faced the end of what was free money. I don’t know what Vancouver would do if it weren’t for all the foreign money coming here.

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