Investment Property Mortgage Rule Changes

As many as 15% of all new mortgages granted in Canada are for properties the owner doesn't live in. And now, starting this spring, the landlord/investor has to put down a minimum down payment of 20% in order to obtain Canada Mortgage and Housing Corporation (CMHC)- insured properties, part of rule changes announced in February.

However, it's worth noting that it is not all bad news when it comes to the federal government's recent changes to rental property financing. For example,

  • The changes won't apply to borrowers who buy principal residences that also include some rental units
  • The increase in down payment - up from 5% - will significantly reduce the risk of "reckless speculation that can drive prices to unsustainable levels which does not serve Canadian home buyers" (to quote Finance Minister Jim Flaherty)
  • The new rule will be difficult to administer - given that lenders cannot be 100% sure of when mortgage-seekers plan to live in a home they wish to purchase
  • A possible drop in the inventory of rental units in Canada could push more people to buy home instead of renting

    And this change only applies to CMHC insured mortgages for investment properties. As one prominent Canadian finance blogger wrote about the new rule change, "If I were to buy a rental property today, I would put down at least 20% to avoid the CMHC fees regardless of the new rules."

Nevertheless, the largely unexpected mortgage change has the potential to put a damper on income property financing business for lenders and brokers, and it means that people seeking investment properties need to be more creative in seeking financing - such as using a private lender, or attracting joint venture capital and finding a partner to go in on the home purchase with them.

What do you think? Whether or not you are considering the purchase of a property you will not be residing in, we'd like to hear your point of view. Leave your comments below.

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2 Comments
April 26, 2010
8:21 PM

I was thinking about buying a small townhouse as an investment property,rather than leaving RRSPs in the bank making nothing.
I am not much of a risk taker,but real estate is a decent gamble.
The recent increase to 20% has now put this dream out of my reach as i can only put down 10%.
Do you know of any way to finance a property with the 10% down,without lying about residing in the property?

Jim
January 26, 2011
7:27 AM

Once again the government punishes the wrong people. The new rules are supposed to deter speculation, but since landlords are typically in it for the long haul (unlike flippers), the government has provided one more reason why rental stock will shrink and ultimately hurt renters (higher demand from more renters who cannot buy and lower supply as fewer people will become landlords = higher rents). Investment property will become a better deal for those who can work through these issues because prices will drop with fewer investors in the market.

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