Mortgage Rules Have Changed. Effective April 19th

Govt. of Canada changed some mortgage rules today to make it a little harder to get a new mortgage or refinance an existing mortgage. There are 3 changes in rules aimed at home buyers, investors and borrowers who may be planning to refinance.

1. Home buyers will need to meet qualifying criteria for a five-year fixed rate mortgage even if they opt for a lower rate and shorter term or a variable/adjustable rate mortgage. This change is aiming to prevent mortgage defaults in case of interest rates rise in future.
   
   
2. Maximum refinancing allowed will be 90% of the equity in your home, a 5% drop from 95%. This change is aimed at keeping more equity in the home and and build a bit of a cushion just in case prices go down.
   
   
3. A minimum down payment of 20 per cent will be required to purchase rental properties. This is a huge change from 5% down-payment requirement under current rules. This change is aimed at preventing speculation in Canadian housing market.
   

So what do these hurdles mean for you?

#1 is not a major chnage. Most lenders already use a fixed rate for qualifying you for a variable rate product. The change is going to less than 1% of the 3year fixed rate currently used by major lenders. You will still qualify for a mortgage but for a lesser amount.

#2 if you have lots of credit card debt and little equity (less than 10%) in your home, you will not be able to refinance and pay off the high interest debt. You are also out of luck if you were planning to buy a fixer-upper and rent it or fix-it-n-flip-it. You need more than 90% equity in your existing home if you are relying on refinancing.

#3 This is a big one. You need 20% down payment to buy rental homes. CMHC will not insure your mortgage if you have less than 20% down-payment. You will still find lenders willing to lend with less than 20% down but those uninsured/self-insured mortgages usually have higher fees and interest rates.

***The cost of getting a mortgage is still the same. Interest rate remains unchanged.

 

Comment Notification

Subscribe to this post's comments using RSS