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Tag Archives: 35-year amortization

Condo buyers struggle to adjust to borrowing rule changes

CBC News

Recent changes to mortgage rules in Canada have left some condo buyers unable to afford their purchases, say professionals who are watching some clients struggle to hang on to their future homes.

For years, buyers have been pre-approved for mortgages for units in Toronto buildings before shovels are even in the ground. But new federal rules on borrowing means new realities for people who thought they got the green light.

“In the past four years, the amortization [period] has gone down from 40 to 25 years,” mortgage broker Jake Abramowicz told CBC News in a recent interview.

“As a result, suddenly that pre-approval [buyers] had in 2009 is no longer valid. They will either need to have more income or more down payment.”

Comment: This recently happened to a client of mine. This is not just scare mongering (for once), but people are having some troubles.

If buyers are unable to make the necessary adjustments, they could face losing their deposit.

Abramowicz said the buyers caught in this position are doing “whatever they can” to ensure they can still close deals on their condos.

Some of the options they are pursuing can include selling assets, refinancing existing properties or reaching out to family members for help.

Oksana Miroutenko, a Toronto real estate lawyer, said she believes that up to 10% of her clients have been scrambling to come up with additional funds.

Miroutenko said that in some cases, it is possible that some buyers could end up being sued by a developer.

Comment: In which case, who is at fault? How can the buyer be faulted, as they produced a mortgage commitment when they bought. They were under the impression, at the time of purchase, that their financing was approved. But then the rules changed. How can they be faulted? I think we need to create some sort of amnesty, so that those who are truly caught in a bad situation can get out of their agreement without being sued or losing their deposits. It just does not seem fair that people could get so screwed over by something so out of their control.

“If the market conditions are not the best and the builder has to put the property on sale again and if the purchase price is lower than the price that you purchased, then the builder has the right to sue for the difference,” she said.

Industry professionals say they don’t believe that defaulting on pre-approved mortgages is a widespread problem. But with thousands of units reaching completion in the coming year, there is potential for the problem to grow.

Comment: Certainly this could be a problem. It would never even show up on most radars, as it is not defaulting on a mortgage – it is no longer qualifying. Big difference – and there would be no real record of it. While amortizations have fallen from 40 to 25 years since 2009, other people qualified for 35-year amortizations in 2010 and 30-year amortizations as recently as last year. Sure, mortgage rates have fallen a little since 2009, but not that much. And people who had pre-approvals last spring for 2.89% mortgages and 30-year amortizations have seen payments on a $360,000 condo rise by around $300/month with newer 3.54% rates and 25 year amortizations. Not a ton of money, but not insignificant either. Some may have even had 2.60% deals and 40-year amortizations, in which case they are looking at payments 50% higher now ($1,180 vs. $1,760). That could hurt a fair bit.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.

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