New Mortgage Rules Coming on March 18th

Wondering how the new mortgage rules are going to affect you?  Here's some info from the Ontario Securities Commission.

March 2, 2011

Money 2.0

New Mortgage Rules – What Do They Mean?

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There has been an ongoing conversation about good and bad debt in the news lately – is there a difference and how does it relate to Canadians’ personal situations? The mortgage meltdown in the U.S. and the all-time high consumer debt levels in Canada have also raised an alarm.

The Canadian government is now weighing in on the issue. Finance Minister Jim Flaherty recently made an announcement on new mortgage rules that serve the dual purpose of protecting the overall economy as well as nudging Canadians back towards lower personal debt levels.

What happened to the days of mortgage-burning parties? Not so long ago, it used to be a big point of pride to finally own one’s home. And by “own”, it was meant that not a penny was owed, unlike today when “owning” seems to mean living in a house with a mortgage, no matter how large that mortgage may be.

Mortgage Rule Changes

The Government of Canada’s mortgage changes impact both new and current homeowners. The three rules of the program are as follows:

Starting March 18, 2011:

1. The maximum amortization period will be reduced to 30 years from 35 years.
2. The maximum amount Canadians can borrow in refinancing their mortgage will be lowered from 90% to 85% of the value of their home.
Starting April 18, 2011:
3. Ottawa will withdraw government insurance backing on lines of credit secured by homes.

So what do these changes actually mean for homeowners and first-time homeowners?

First-Time Homeowners

First-timers will need to either buy a home with more money down, or one worth less than they could previously afford. The difference between a 30- and 35-year amortization on a $200,000 home can vary depending on the interest rate; nonetheless, the average extra cost for a homeowner is expected to be about $100 more per month. So they must either save more up front, increase monthly payments, or both. The Government of Canada is trying to ensure that more of these buyers own their homes sooner, lowering risk and the amount of debt they are carrying.

Refinancing Homeowners

Homeowners who are looking to refinance their homes, consolidate debt or make home renovations will not be able to access as much money as they did before. This is because, under the new rules, they will only be allowed to refinance up to 85% of the value of their home – down from the previous limit of 90%. This means that for a home valued at $200,000, refinancing it at 85% will allow the homeowner to access up to $170,000, while previously they would have accessed up to $180,000.

All Homeowners

The Government of Canada’s withdrawal of insurance on home equity lines of credit (HELOC) will likely mean an increase in interest rates at the banks. As the Government is no longer backing these loans, banks will need to bear more risk and it is anticipated that they will pass this on to homeowners in the form of higher interest rates.

As our government has taken a look at our finances and taken measures to restrain our borrowing, we too should be taking action. Assess your debt – good or bad – and make a plan to pay it off. The best debt, after all, is no debt – there can be no argument about that.

Making $$$ From Your Home

Need some extra cash to fund a special project or pay down some debt?  Barrie Lebow, president and founder of Senior Housing Council, The Real Estate Academy Inc., has some great ideas for using your home to make money.  His focus is on meeting Real Estate needs in the senior market and I will post more of his articles in the future.

Making money from your home

Make $$$ from your home - It’s not just about selling lemonade

By Barry Lebow (or Frances O’Flynn)
If you’re reading this column, chances are it’s been awhile since you sold lemonade from a stand in front of your house. But entrepreneurial spirit never dies. So here are some grown-up ideas for making money from your home.

Empty nesters, for example, could rent a room or basement suite to students. Even better, by carefully screening potential applicants you could find a student who’s sufficiently trustworthy to leave in charge of the house while you’re away. Or he or she might volunteer to help with household chores in return for a reduced rent.

And what about that garage you don’t use? You could always rent it as a parking spot, but you could also clean it out and rent it to someone who desperately needs storage space or a place to work on a hobby such as restoring old cars. If you are considering renting out the garage or basement for storage, why not take it one step further and offer shipping supplies. Small home-based industries seldom have the space to store or pack their products for shipping.

Here’s a way to make money from Canada’s role as Hollywood North. Film companies comb local registers and scout neighbourhoods looking for just the right place to serve as a backdrop for their movie. You can register your home with the local film liaison office. One acquaintance made over $1,000 a day renting his upscale property to a U.S. film company. They put the house back exactly as they found it, and aside for the inconvenience of having to vacate the premises for the duration of the shoot, nothing was lost, broken or stolen. Added bonus: you’re may just catch a glimpse of your favourite star.

For those with a now empty in-law suite, why not consider renting out the kitchen to a catering company or other food prep organization? You also could rent a basement room as a photography darkroom or a soundproof garage to local musicians for practices.

Don’t overlook the garden. You can grow vegetables, flowers, even turf, on the back 40 and sell the results online or through local landscapers.

Then there are the home-based businesses: bed & breakfasts (particularly in demand in tourist areas); baby sitting services or daycare; pet boarding; esthetics; music lessons and tutoring; antiques (great if you have an old barn or large shed on your property)… the list could go on and on.

For entrepreneurs willing to take risks, there are opportunities in buying real estate as an investment. Many now-millionaires started life with one duplex, living on the top floor and renting the lower. With your expenses paid by the renter, you can buy a larger duplex or a triplex to rent out. The secret, says one wealthy entrepreneur, is to make sure there is money in your pocket after you’ve covered all your expenses. When you’re assessing an investment, determine whether the rent you can charge will pay not just for the mortgage but renovations and maintenance, property taxes and utilities, as well as a certain percentage set aside for potential vacancies and bad debt. Then make sure that still leaves with you a small profit.

Ask the seller for documentation (or rent rolls) which will tell you how much each unit is rented for. You can even ask for past rent history. Then check going rates online or in newspapers. Rents shouldn’t be too high (which discourages renters) or too low (‘there’s something wrong here’) for the area.

Finally, for empty nesters who are reluctant to sell the family home, why not rent it and downsize to a condo or smaller home? This has the advantage of maintaining the home in the family (perhaps the kids will want to buy it from you when they’re settled and more financially secure). It also has the disadvantage of making you a landlord. Depending on the tenant, the condition of the house, the area and a whole host of other factors, you may be taking on midnight phone calls, angry neighbours and potential damage to the building.

Other downsides of making money from your home: Government regulations affecting home-based industries may make it hard to set up a pet-boarding facility or catering kitchen. Parking for customers may be a problem for home businesses such as esthetics. Film companies, and particularly ad agencies who want to film commercials in your home, may not be scrupulous about returning the house to its original condition. Tenants could damage your property. Students could be noisy.

But then, even selling lemonade from a stand in front of your house years ago probably violated some health regulation. It didn’t stop you then. Will it now?

This information is brought to you by your Accredited Senior Agent, a specialist in the housing needs of older adults. Your ASA is an experienced real estate professional who has graduated from a special education program focusing on the needs of seniors. For information, please visit www.thesenioragent.com or contact, Barry Lebow, President and Founder, Senior Housing Council, The Real Estate Academy Inc., providers of the Accredited Senior Agent designation, 416-784-9806 ext. 107