Changes to Mortgage Rules

Yesterday  the federal government announced changes to the rules for government-backed insured mortgages (less than 20% down payment). The rules are listed below.  Below to each rule, I have added my comments. I hope my comments clarifies any doubts you may have. As always, if you have any questions please feel free to contact me.

– In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage — up from the current standard of three years.

This does not mean that a consumer will no longer be able to receive a variable rate mortgage or a term less than 5 years.  What this means is that a consumer must be able to afford the payments and interest of a 5 year mortgage product, in order to qualify for the lower Payment and Interest typically associated with a shorter term or variable rate.

– If prospective home buyers want to purchase a property where they will not be living, they will have to come up with a 20% down payment.

The 20% down-payment is aimed at the real estate speculation market.  It will help prevent people from buying 5 or 6 condo apartments in the hopes that they will sell quickly once the unit is completed.  This should not affect the person buying a second home or cottage.  It specially targets the investor who will not be living in the property, and has no intention of living in the property. As a consumer, you can still expect the standard 5% (residential dwelling) down payment.  Commercial Mortgages are unchanged.

– Instead of being able to borrow 95% of a property’s value, the limit will now be 90 %.

This is not a bad thing; in fact, a good mortgage broker/agent should be making this recommendation regardless of a new law being passed.   This rule means that consumers will need a borrowing strategy that goes beyond just getting a chunk of money.  You should now consider paying your high interest debt (Trust Company Loans, Pay Day Loans, High Interest Credit Cards, Department store cards) and leaving low interest products (line of credits, premium credit cards) as is.  You will still save on your monthly payments.