Well, our government has intervened again! It has only been a year since the last round of changes. The newest with new rules effective March 18, 2011 and include:
Newest rule #1: Maximum amortization has been reduced from 35 years to 30 years.
While we agree that it is a good idea for individuals to qualify for a lower amortization period and be able to save interest, there are some situations where a longer amortization makes sense. For instance:
- First time homebuyers trying to get into the housing market
With the increase in the average home price, it is very difficult for first time home buyers to get into the market. This group is also at the beginning of their career and have tremendous upside for increased earnings.
- Investment Property Owners
Investors don't necessarily want to pay down their mortgage quickly. It is more about the profit that the property generates versus reducing their mortgage quickly.
Seniors may be looking to take equity out of their property, stay in their home longer and have smaller mortgage payments.
Only 22% of the entire mortgage market has an amortization greater than 25 years!
Newest Rule #2:
Lowering the maximum loan to value (mortgage amount / property value) from 90% to 85%
While this new rule will help you keep more equity in your home, it doesn't identify or address the real culprit. The ridiculous credit card interest rates and managing your "non-asset" debt.
Current debt to income ratio is 146% - higher for the first time in history than our American friends.
Newest Rule #3:
You must have 20% down payment in order to qualify for a secured line of credit.
There is always the temptation with an interest only loan to only pay the minimum required so that you are never reducing your debt. With this new rule, you will be protected with a minimum of 20% equity in your home.
If you have any questions on how the new rules will affect you and your mortgage, I'm only a click or call away!