Changes to Lending Guidelines for Insured Products
Jim Flaherty, Canada’s Minister of Finance, announced new lending guidelines for Canadian Mortgage and Housing Corporation (CMHC) backed mortgage loans in a recent announcement.
The new rules are as follows:
1. All borrowers must qualify for a mortgage using the five year fixed rate regardless of the term chosen.
2. When refinancing a home, Canadians will only be able to refinance up to 90% of the value instead of the previous 95%.
3. If you want to purchase revenue property CMHC will no longer insure you. You’ll need to put 20% down to take out a conventional mortgage.
These changes will take effect April 19, 2010.
What does this mean to the consumer who is presently trying to qualify for the maximum mortgage amount? I would recommend putting your plans in motion for purchase or refinance before the rapidly approaching deadline.
See the Government of Canada Department of Finance website for more details
Chris Pahl
Interesting Times for Canadian Mortgage Borrowers
Those of us who have been working in the mortgage industry for more than just a few years will agree that these are most interesting times. Borrowers who took advantage of variable rate mortgage offerings a few years back are now confronted with the hard question, “Do I look at locking into a fixed longer term mortgage or do I continue to “float” at a deeply discounted interest rate?” The one thing that I have learned about this business is that there is nothing more constant than change. Rates go up and rates go down. Rate volatility can happen for many reasons and some times not for the reasons a borrower expects, like a tight supply of mortgage funds or a Financial Institution’s Fund Matching requirements.
I agree that there are many economic reasons not to expect large increases in Canadian Mortgage Interest rates in the near future. However, based on the Bank of Canada’s position calling for an increase to the prime rate starting this summer, current mortgage underwriting guidelines that get less flexible every day, plus a recent trend that shows an increase in the 5 to 10 year Canadian Government Bond Rates, it may now be time to take a hard, honest look at the affordability issue of mortgage payments.
If interest rate were to jump 1%, 2% or 3%, would you still be comfortable with your shelter costs? Always remember that we are dealing with historically low mortgage interest rates. Some lenders offer the option of a split mortgage term. This permits a mortgagor to leave a portion of their mortgage floating while at the same time locking in a portion at a fixed longer term. This may well be a product that borrowers will start to embrace as a prudent option over the coming months.
Paul Croy
Balance in the Canadian Housing Market?
There was an interesting article written by The Canadian Press (posted February 17, 2010) regarding the Canadian real estate market. Victoria, Vancouver Island & BC are different ‘cups of tea’, but I certainly think that our market IS becoming more balanced and that anticipated, and coming, changes in ‘qualification criteria’ for ‘insured’ mortgages will actually assist in stabilizing our market.
The HST will certainly impact sales of homes priced at the mid – high end of our marketplace, but should not slow ‘entry level’ sales. Entry level sales inevitably drive the rest of the market so….. I am cautiously optimistic regarding our real estate market!
My thoughts on when / how higher interest rates will affect us is another matter… for another day.
TGIF… Go Canada!
Walt
