Huge news has come down the pipe about changes to mortgage lending. Whether you are looking to buy a home or refinance a current mortgage, these changes will affect you. The changes will come into effect on July 9th, 2012 so if you have been considering mortgage financing, you may want to get it done sooner than later to ensure you qualify. Here is a list of the major changes and what they will mean.
1. Amortizations have been shrunk from a maximum of 30 years to 25 years for high ratio mortgages. This means that if you have less than 20% equity in your home, the maximum amortization you can get is 25 years. The most major impact this has is that monthly payments will increase dramatically. For a $300,000 home purchase, the minimum payments go up $150 per month. For a $500,000 home purchase, the minimum payments go up $250 per month. And for a $700,000 purchase, the minimum payment increases by $370 per month.
2. GDS/TDS changed to 39/ 44.
These numbers represent gross or total debt servicing and ensure that a borrower is only using that percent of their income towards mortgage payments and total liabilities. These numbers have increased from the past so although amortizations have shrunk, the qualifying ratios have increased.
3. Refinances to a maximum of 80% of the home value. This is a major change. If you own your home, you cannot refinance your mortgage unless you have 20% equity in your home. Having said this, if your mortgage is up for renewal, we can still shop the market and transfer to a more competitive lender despite this rule change. You simply cannot add more funds or consolidate without leaving 20% equity in the home.
4. No more mortgage insurance for mortgages over $1 million. This probably does affect many people. If you can afford a $1 million home, hopefully you are putting more than 20% down.
5. Secured Home Lines of Credit will only be issued to a maximum of 65% of the value of the home. This is also a major change because line of credit could be secured to 80% of the home value before. If you are considering a home line of credit, get it now.
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