February 16, 2010, 6:19 pm

Canadian Mortgage Rules To Change Says Flaherty

by: The Financial Blogger    Category: Properties
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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.

Why changing the mortgage rules?

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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Definitely newsworthy; I just did a thread on the same topic. I think the third change is definitely among the most cautionary moves by the Fed”s.

and I just read a simiar thread at Million Dollar Journey 😉

I would have hope for more restricting rules… like max amortization of 25 years and minimum cash down of 10%… oh well…

by: Mortgage Broker | February 17th, 2010 (3:27 pm)

Not crazy about the 20% down for rental properties. It eliminates a lot of small-time investors who would like to purchase a rental property for extra cash flow and to build their net worth…many of them cannot afford to start off with 20% down. Why make the drastic jump from 5% to 20% d/p?

Make it 10%, and drop the amortization to max 30 years, sure! That would still weed out the clients who can’t afford the high payments, but still gives them the equity if they need to turn around and sell the house–and the insurers/lenders too in the foreclosure cases

[…] previously mentioned last week, the Canadian Government played with Canadian mortgage rules in order to reduce accessibility to the housing market. With these measures, it hopes to slow down […]