Details on Mortgage Changes
The Federal Government has announced changes to Mortgage Rules it hopes will prevent a glut of foreclosures if market conditions change and people are left with no or negative equity in their homes.. I asked Daryl Marsden from Canada Mortgage Direct to outline the shift.
Details on Mortgage Changes Blog Transcription
The key changes, there's five or three key changes that have happened right now. The first one is the 5-year, all qualification for mortgages after April 19th is gonna be on a 5-year basis, so 5-year fixed term. So whatever your interest rate is when you go to get qualified that they're gonna do it based on, it depends if you deal with a broker or if you do it with a bank, they'll take their 5-year fixed rate term and then that's where they'll qualify you on. It the past, it's been, they've been able to fluctuate between a 3-year and a 5-year. So that was the first change they've made that a rule as of April 19th all mortgages are now qualified on a 5-year fixed rate. Before, you were allowed to refinance up to 95% of the value of the home. Now the new rules after April 19th will be that you have to, the maximum you can refinance is 90% so there has to be a 10% equity cushion in there and the reasons for that, there's a variety of reasons for that but the main reason is that the government's afraid because listening to some economists that the market is going to go down in the next four years. So that 5%cushion will be less and it wont be there any longer. So a lot of these people will be in one 100% financed mortgages, that being the case there may be more tempted to walk away like what's happening in the United States. The last thing involves investors, investors have normally always put down 25% to avoid CMHC when it came down to financing the revenue property or investment property. In the last few years, they've been allowed to put down as little as 10%. There was 5% but that changed last October and then they went to 10% and then that has changed as well and now they must have at least 20% down payment in order to do this, in order to buy a revenue property. So that still means the mortgage will be insured if they put 20% down so that still means they're gonna have a premium on their above 4% on a 25-year amortization. So those are the three big changes that are taking place.
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