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Mortgage Rules Working as Level of Insured Mortgages Drops

Well last week CAAMP was crying out for the federal government to revise the mortgage rules that went into effect in July, as they were hurting an already struggling market. But CMHC has released new stats showing that the amounts of both insured mortgages and home refinancing have dropped drastically. And that’s exactly what Finance Minister Jim Flaherty wanted to happen, meaning he’s not likely going to be rescinding those rules any time soon.

The news is really good all around if you’re looking at it through the government’s eyes. According to CMHC, the number of insured mortgages dropped by six per cent year-over-year in the third quarter of 2012, and that home refinance levels dropped even more significantly, by 22 per cent when compared with last year.

This is undoubtedly due to the mortgage rules that dropped amortization periods on insured mortgages from 30 years to 25. This rule had a drastic effect on first-time homebuyers who didn’t have the full 20 per cent down payment in order to buy a home. The rule forces buyers to pay a larger monthly mortgage payment, sometimes adding hundreds of dollars onto that payment per month for owners. The cost can be so high in fact, that it’s made housing simply unaffordable for many buyers.

And while it may have been applying pressure to those in the house-hunting market, it’s been good news for the government, and for the Crown agency. CMHC announced earlier this year that it was very close to hitting its insurance cap of $600 million. At that time their current level of insurancec stood at about $567 billion. Now nearing the end of the year, CMHC reported that their insurance levels had only increased to $575.8 billion, keeping it relatively stagnant from the second quarter of 2012, and rising only two per cent from the same time last year.

¬†Along with the report CMHC also stated, “The new mortgage insurance parameter that took effect in July 2012 effectively eliminated the refinance market which contributed to this decline.”

That’s certainly true. A 22 per cent drop, while not eliminating the Canada home refinance altogether, does put a drastic dent in it, and that too is due to the new mortgage rules. In addition to taking aim at insured mortgages, the new rules also reduced the amount available through home refinancing to only 80 per cent of home equity, down from 85 per cent.

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