Charlotte & Vivian Jablanczy

April 19 2010 – New Rules for Mortgages take effect: What does this mean?

I recently came across an article from Canada Realty News that highlighted the new rules for mortgages that take effect on April 19.
Here are a few key points: 

"Finance Minister Jim Flaherty recently unveiled new mortgage rules aimed at stopping housing speculators and ensuring homebuyers can adequately handle their debts when interest rates inevitably rise. Mr. Flaherty stressed that Canada's real estate market is healthy, and that the new rules, which take effect April 19th, would stop “negative trends” from development."

Here is a quick summary at the changes which apply to government-backed insured mortgages:

1. Borrowers must now qualify based on a five-year fixed rate even if they choose a mortgage with a lower interest rate and shorter term.

2. The maximum amount Canadians can withdraw when refinancing their mortgages will be reduced to 90% of the value of their homes, instead of 95%.

3. A minimum down payment of 20% will be needed for government-backed mortgage insurance on non-owner-occupied properties. (Recreational, Rentals, Second-homes... etc) 

For most consumers, the changes are unlikely to make it harder to get a mortgage but it could reduce the size of the mortgage an individual consumer can get.

Undoubtedly there will be a rush of mortgage applications to beat the April 19th deadline. However it is expected some lenders will start to implement these guidelines before April 19th.

The economic implications of this rule change are unlikely to be severe, and we expect the housing market to slow its ascent without crashing down.