Mortgage Logic

Canada Amends Rules on Insured Mortgages

Today Jim Flaherty (Finance Minister) announced amended rules on insured mortgages which will take effect on April 19, 2010.

1.) Clients who chose a variable (or adjustable rate) mortgage will need to be qualified on a five year fixed rate.  Currently there are no lenders in the market that qualify borrowers on the variable rate that they will be receiving.  The standard qualifying method has been using the three year fixed rate.  The new requirement to use the 5 year fixed rate to qualify a borrower will marginally impact the real estate buying market.

Qualifying on a fixed rate for a variable rate mortgage is something that U.S. mortgage underwriters never did, previous to the credit and housing crisis there.  It contributed significantly to its real estate bubble, downfall and subsequent market crises.

2.) Revenue property clients must now put at least 20% down to purchase investment properties.  Up until now we were financing investment properties with as little as 5% down.  Typically clients who request placing a minimal down payment on investment properties are beginners in this sector of the market, looking for appreciation of house prices to buoy their fortunes.  This is understandable given the stock market melt down over the past few years, and the frustration that has come out of it.

3.) When refinancing their properties Canadians will no longer be able to withdraw up to 95% of their home equity.  The maximum will now be 90% of the value of their home.  This will affect the mortgage market in the number of transactions now occurring.  Many people have been taking advantage of this for consolidating debt or for taking equity out for purchasing investments, including additional real estate.

We are still mortgaging with 40 year amortization on conventional non-insured deals.  The recent changes did not affect minimum down payment, nor maximum amortization on insured mortgages.  These still remain at 5% down and 35 year amortization.

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