Investors could be hardest hit by amortization cap

The proposal is expected to get floated past federally regulated lenders by the Office of the Superintendent of Financial Services as early as this spring, according to sources. It would effectively limit borrowers who put down 20 per cent or more on a property to 25-year term.

That move would represent a sea-change to the 30- and 35-year amortizations that conventional mortgage borrowers are currently able to access in the marketplace.

Flaherty and OSFI are reportedly considering the tighter mortgage rule as a way of further slowing the real estate market, which has already quieted down since Flaherty’s decision last summer to, among other things, reduce the maximum amortization for high-ratio mortgages to 25 years.

This proposed move on conventional is considered by some analysts as a potential overreach by the government and the bank regulator in that conventional mortgages don’t require mortgage insurance and so the backing of federal funds.

It’s a chief reason why any move to reduce the amortization on conventional mortgages would come down as an OSFI guideline and not a direct edict from the ministry of finance.

Even so any move in that direction could increase the carrying costs for small property investors looking to add to their portfolios.

Ostensibly, it would also make it harder for them to come up with the extra cash to renovate those new acquisitions and so increase their cash flow through increased rents.

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