New Mortgage Regulates and Current Rates

Check out Peter Majthenyi's coverage on the new mortgage regulations that you need to know!

New CMHC (Canada Mortgage & Housing Corp) Guidelines and You…

By now most have heard that our Finance Minister is concerned about Canadians keeping their debts under control so American mistakes are not repeated here. The Canadian housing market has been quite resilient regardless of the crippling global recession of the last two years. Now Canada takes great pride in our Banking system and prudent lending practices … we are the “Gold Medalists” of the Economic Olympics so to speak.

CMHC has agreed to work with “Big Brother” and make some minor changes to mortgage lending rules, which I feel are quite insignificant for the typical borrower. These new rules are practices that most mortgage professionals have implemented quite some time ago.

• Now buyers need to have their employment income to mortgage payment ratios to be based on the five year fixed mortgage rate even though they may choose a variable rate mortgage at a much lower rate. Previously we were required to use a three year fixed mortgage rate to determine one's qualifying ratios. Again, this difference is very minor for anyone who deserves a mortgage.
• When refinancing to better reposition debts we can no longer increase the mortgage up to 95% of a property's value. Going forward we can consolidate our obligations by increasing our mortgage to only 90% of the property's value. In the past, rarely would I see someone in a desperate position where we needed to leverage their home up to 95% when consolidating their debts.
• Finally, investors now need to put 20% down payment on a rental property where until now they could buy with as little as 5% down. When buying a rental property with less then 20% down the insurance premiums were so high that it was counterproductive to consider buying an investment property this way … not once have I seen an investor want to pay the high CMHC premium to buy with 5 or 10% down.

Even though the above changes will have little effect in cooling off our hot real estate market, we are seeing other changes at CMHC that are causing some borrowing barriers. As of late, CMHC has been more cautious when appraising property values, and in multiple offer situations CMHC is questioning purchase prices that are well in excess of the list price. We have also noted that they are scrutinizing credit ratings more carefully, as well as job tenure. Our best advice is to be well prepared with your mortgage planner in advance of making offers where the mortgage will be more then 80% of the purchase price.

2010 will prove to be a strong year for real estate primarily fuelled by low mortgage rates that are not expected to rise significantly anytime soon … so for all intents and purposes it is “Business as Usual”.

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