Changes to Canadian Mortgage Rules

In an effort to ensure stability in the Canadian Economy, the Government of Canada made some changes to the rules for mortgage qualification.  It is widely expected that mortgage rates will be higher in the second half of 2010, possibly by 100 basis points to 150 basis points from today’s rates.  The Government wants to ensure homeowners are not buying homes and qualifying for the mortgages at the very edge of their financial ability, only to find that they cannot afford the payments once rates increase.

We are in a period of very low mortgage rates.  Rates as low as this have not been seen in Canada for 40 to 50 years.

So, the changes Federal Finance Minister Jim Flaherty announced this morning will be effective from April 19, 2010. They are as follows:

  1. All borrowers must qualify for their mortgage using the rate 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. For investors, non-owner occupied properties will require a minimum down payment of 20%.

There were no changes to down payment requirements or length of amortizations for owner-occupied residences.

These rules should continue to keep Canadians out of the kind of foreclosure problems we have been watching happen in the United States.

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