How Do New Mortgage Rules Affect You?

New mortgage restrictions announced in February by Finance Minister, Jim Flaherty, are now in effect. They are:

•Borrowers must now qualify for five-year fixed mortgage rates even if they are applying for shorter-term, variable rates.
•The maximum amount that Canadian home owners can withdraw for mortgage refinancing drops to 90% from 95% of the value of their properties.
•To qualify for government-backed mortgage insurance, property investors are now required to make a 20% down payment to qualify for CMHC mortgage insurance – up from 5%.

Essentially, with historically low rates heading upward, these changes mean that buyers must now demonstrate that they can pay down their mortgages even if rates rise. According to the website Canadian Mortgage Trends , this could mean that borrowers will need to earn up to 25% more in income to qualify for a one to four year mortgage.

Many mortgage experts believe that the changes will do little to cool the Canadian housing market in the short term. Posted rates are almost always higher than those that lenders are willing to negotiate. What the new rules do is discourage buyers from entering into mortgages that they cannot afford – and that is a good thing. According to a report by CTV News, the downside is that these rules could lead to the emergence of more creative financing, including borrowing off credit cards to make down payments.

It’s apparent from online comments and investment blogs that rental property investors feel most chafed by the new restrictions. Changes to how debt-to-service ratios are calculated – combined with tightening of refinancing limits – may discourage first-time investors from entering the market.

What do you think?
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