Just a mini post here today as M. Jim Flaherty (Minister of Finance) just changed a few rules regarding Canadian mortgages:
#1 You won’t be able to qualify your mortgage application according to the very low variable rate of 2.25%. When you will ask for a mortgage to a financial institution, they will have to qualify your debt servicing ration according to the posted rate of the 5 years term. Therefore, as of today, it would be closed to 5.39%… this could jump your monthly payment by $350/month on a $250,000 mortgage if we compare payments for a 5.39% and a 2.25% interest rate.
#2 You won’t be able to refinance your mortgage more than 90% of your house value. The previous mortgage rule was allowing individual to finance up to 95% of their market value.
#3 If you are looking to buy a rental property, you will have to put a minimum cash down of 20% of the market value. No more low cash down / big mortgage with rental properties.
The explanation is quite straight forward: while the interest rates are not going to jump from 2.25% to 5% shortly and the housing market keeps reaching new high from months to months, the Canadian government had to find a solution to slow down the housing market.
It other option was obviously to play around with the mortgage rules in order to protect the Canadian consumers from themselves. Since the average Canadians don’t seem to be able to manage their budget properly and Canadians banks are more than willing to lend them money, someone has to put their foot down and avoid another housing bubble, right?
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