Are the 2012 Mortgage Rules a good idea?

July 5, 2012 | Posted by: Mike Garganis

As you heard by now, the Federal Government made some changes to help curb Canadians from getting in over their heads.  Now obviously the banks won’t come out and say “we’re opposed to this…” as Mortgages remain to be their bread winner, but maybe the parties involved in the transaction are to blame.

 I'm not one to point fingers, but part of my job is to have a discussion with my clients, who are making the mortgage payments, is to ensure they can afford it!  To make it easy.... if you make $5 a month and your mortgage payments are $4 a month, guess what, your looking for another house.... one you can afford.  Besides the obvious necessities, like food and clothing, there are also property taxes, utilities, insurance, groceries, cable, phone, etc.  

Savings is a word no one wants to talk about anymore because people are doing everything they can to make ends meet.  I'm going to show you a scenario that will come up in a few years, if not sooner.

Take a $375,000 mortgage at 2.50%.  This is variable mortgage, prime rate (currently 3.00%) minus 0.50%.  Now the margins aren't what they use to be anymore for variable mortgages, plus lets assume the rate does go up in the middle of 2013 like they expect.  Let's assume they bump it up to 3.50%.  

The payments for $375,000 at 2.50% are roughly $1,440 a month.  


Now lets take a look what they would be under the new rules.

$375,000 at 3.50%.  The payments will be roughly $1,870 a month.  that's an increase of $430 a month.  


Can you figure out why?  The first was using a 35 year amortization and the renewal is using a 25 year amortization.

I don't know about you, but $430 a month is a good chunk a change.  


Feel free to contact me and I will assist you.


Mike Garganis



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