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Posted 2 Comments on Tighter Mortgage rules become a reality on April 19, 2010…. Mortgage News

Tighter Mortgage rules become a reality on April 19, 2010….

As we reported last week, the speculation about possible Mortgage Rules changing has become a reality…. the  Federal government is going ahead with changes in Mortgage lending policies…..and these will come into effect April 19, 2010.   Here are the 3 changes as reported on CBC.ca:

  1. all borrowers will now have to qualify using a 5 year fixed rate even if they choose a shorter term or a variable rate mortgage. (3 years fixed was the standard qualifying rates)
  2. refinancing your mortgage is now capped at 90% of the value of the home instead of 95%.
  3. investment properties will now require a 20% down payment instead of the current 5% down.

This last change will probably have the greatest impact in my opinion…  It’s designed to discourage buying condos and houses for speculation purposes.  However, ask anyone how their RRSPs are doing lately… the answer will probably not be good…  A great many Canadians starting turning to real estate as means of buying a safe, long term investment… this could be done with as little as 5% down… but no more.

Early reaction is that these rule changes  will create a small surge in house sales and then we should see a cooling off in the market…. only time will tell if these measures will have the desired effect or if they will simple force Canadians to get back into the Mutual Fund and Stock Market….  stay tuned as we follow this story..

Posted 2 Comments on No housing bubble but possible tighter mortgage rules? Mortgage News

No housing bubble but possible tighter mortgage rules?

Last December, there was a report by CTV that the Federal Government was considering making some changes to mortgage rules if he saw evidence of a housing bubble.  These included increasing the minimum down payment from 5% to 10% and shortening maximum amortizations to 30 years from 35.

Today, the Globe and Mail reported Jim Flaherty, the Minister of Finance, has no plans to tighten Canadian Mortgage Rules.    He sees no evidence of a housing bubble.  The article goes on to say, the Big Six Banks have been putting some pressure on the Government to tighten mortgage rules.   Are you paying attention Mr. or Ms. Homeowner?  This could affect the value of your home.

Anything that makes is tougher for buyer’s to qualify for a mortgage will reduce housing sales and this ultimately will affect the value of real estate.  But probably the bigger and unwelcome effect is that it will make owning a home more difficult for first time homebuyers.

Let’s not forget that our government took action in October 2008 by reducing the maximum amortization to 35 years from 40.    They also abolished $0 money down and brought in a 5% minimum down payment. Is more action needed at this time?  I don’t think so…what troubles me a little is how the government and the Big Six banks are reportedly having secret meetings that concern mortgage rules.

Affordable housing is part of the Canadian dream.   The record low interest rates were brought in as part of the stimulus plan to help us get out of the recession.  We’re not completely out yet… let’s hope the government takes action that will help Canadians, not hinder their ability to own a home.

My suggestion to the government is to flex some muscle and get the banks to cap or standardize how they calculate prepayment penalties on residential mortgages.  We’ve seen far too many borrower’s with job troubles  that tried to benefit from the record interest rates, only to be hit with enormous prepayment penalties of $10,000, $15,000 and even $20,000.  Let’s help these Canadians.