Wednesday, February 17, 2010

New Mortgage Rules

Today, the Finance Minister Jim Flaherty made some changes designed to slow down the more speculative and risky portions of the housing market short term - and to provide additional stability for the future. Let's look at them so we understand what is happening.

First - if you want to take out a new variable rate mortgage (or any other mortgage where the rate is less than the 5 year fixed rate) you must qualify for that mortgage using today's 5 year fixed rates. As you know, to qualify for a mortgage, your payments can't be greater than a certain percentage of your income. Yesterday, for example, we would use a mortgage payment based on the current 3 yr fixed rate when looking at a variable rate mortgage request - today (actually no later than April 19, 2010) we will calculate that ratio using a 5 yr fixed rate. People can still get the 1.95% variable rate mortgage but now they have to demonstrate, through that ratio, that they can handle the mortgage even at today's 5 yr fixed rate.

Second - if you want to refinance your home, you can only take up to 90% of your homes value out instead of 95%. This is designed to slow down speculators taking equity out of their homes for other investments and to ensure that if there is a small correction in particular over-heated markets, that we don't end up with negative equity home-owners. None of us want to own a home with more debt on it than it is worth!

Third, and finally - if you want to purchase an investment property - non-owner-occupied - you are going to need at least 20% down. For multi-unit residential (greater than 4 units) this was previously 15% down - but for 4 units and under you could in some cases go as low as 5% down. This is a material change and absolutely targeted at reducing speculation in the market - particularly in the big city condo market.

All in all, this is a decent attempt at slowing speculation and reducing risk as we move forward out of this slower economy, without killing the market. While the media continues to bring up issues like increasing minmum down payments to 10%, everything that I hear and read suggests that this is largely off the table - it has too much potential to kill the market - something nobody wants to do in this fragile economic recovery period

This information has been brought to you by:
Jim Cook
Mortgage Broker
Mortgage Intelligence

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