By now everyone is aware of the fast approaching changes to tighten up mortgage regulations. I just received this e-mail from David Rees, a mortgage specialist from TD Canada Trust. This is a very easy to understand explanation of the up and coming changes and how they will affect buyers starting April 19, 2010.
The news released by Federal Finance Minister Jim Flaherty announced prudent changes to mortgage insurance rules intended to come into force on April 19, 2010. The changes can be summed up by 3 key points:
1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
3. Non-owner occupied properties will require a minimum down payment of 20%.
So what does the above mean?
Change #1. Currently, for clients taking a term of 3 years or less, OR, for clients taking a Variable interest rate mortgage (currently at Prime - .1%, or 2.05%), financial institutions qualify clients based on a 3 year rate (which is typically lower than the 5 year rate). By making the change to qualifying ALL clients based on the higher 5 year rate, the government is ensuring that clients can handle an interest rate hike, even if their existing mortgage rate is significantly lower than the 5 year at which they will now be qualifying for.
Change #2. I think this is a good change. This really forces the Canadian homeowner population to keep a minimum amount of equity in their properties and will always allow for a minimum contingent of funds if clients are ever forced to sell their property for personal reasons.
Change #3. The primary purpose of this change is to discourage market speculation and put a barrier up to make it more difficult to enter the real-estate investment realm for people who really can’t afford to loose money. Right now, for investment properties/rental properties, there are lenders out there doing 90-95% financing on non-owner occupied properties. Typically however, it has always been a minimum of 20% down with major financial institutions and it’s only the smaller lenders that were willing to take on more risk that have been doing the higher lending amounts on non-owner occupied properties. This new piece of legislation really just evens out the playing field in the lending market.
Click here for a detailed government press release about these changes.
As always, if you have any real estate questions please don’t hesitate to contact me anytime.
For any mortgage questions I have included David’s contact information in this post as well.