New mortgage rules come into effect March 18th, or do they?

On January 17th, the BoC announced changes to the amortizations of insured mortgages, decreasing the maximum amortization from 35 to 30 years. This goes into effect on March 18th, so the thought was if you did not have an accepted offer by this date you would be forced into a 30 year amortized mortgage, thus decreasing your maximum purchase price. Well this is partly true.

Most lenders will allow you to take advantage of their rate hold window of up to 120 days to close on a purchase. What this means is you must have a accepted offer of sale by March 17th and if you do you will have up to 120 days to complete on the sale and still take advantage of the 35 year amortization. This will also apply to re finances as long as you have your refinance documents into your mortgage broker or lender by March 17th.

Bank of Canada Maintains Overnight Rate

Once again and as widely expected the Bank of Canada left its overnight rate unchanged at 1% (3% bank prime rate) for a 3rd consecutive meeting. We are seeing the economy recover at a somewhat faster pace that originally anticipated, but the risks are still elevated, due to concerns of the pace of recovery in the EU as well as the continued strength of the Canadian dollar.

Yesterdays decision to decrease the amortization of all insured mortgages to 30 years from 35 also made the decision easy to maintain the overnight rate at 1%.

The BoC projects a 2.4% increase in the economy in 2011 and a 2.8% in 2012, with a full return to capacity a by the end of 2012. The BoC's next fixed rate announcement is only 6 weeks away on March 1st.

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Dept. of Finance Tightens CMHC Mortgage Rules

For the second time in twelve months, the Department of Finance tightened rules on residential mortgages to help slow the pace of household debt accumulation. Changes include shortening the amortization period to 30 years (which had already been shortened from 40 to 35 years in 2008), a reduction in the maximum refinance percentage from 90% loan-to-value to 85%, and withdrawing CMHC insurance of home equity lines of credit (HELOC).

Changes to the amortization period and the refinancing ratio will take effect March 18 and the HELOC change will take effect April 18, 2011.

In terms of monetary policy, this helps take some pressure off the Bank of Canada (BoC). With all the talk about the non-sustainable pace of household debt accumulation, there was speculation about whether or not the BoC would consider hiking interest rates for reasons not directly related to its inflation-targeting mandate. Such speculation can be put to rest for the time being.

Loonie looks to stay at par with U.S.

Thanks to a sound Fiscal situation in Canada, Finance minister Jim Flaherty says that the Canadian dollar will hover at parity with the U.S. dollar for some time. It makes no sense that the Canadian dollar will go beck to being devalued next to the US dollar for some time, considering the strength of the Canadian Economy.

House Prices expected to rise in 2011

The average house price in Vancouver has hit 1 million dollars, an increase of 9.8% in 2010, and it is expected to rise 3.7% in 2011. Expect sales activity in the lower mainland to be very strong the first half of 2011 due to home buyers taking advantage of the record low interest rates. Click here to read the entire Vancouver Sun article