New Mortgage guidlines

I'm posting this article because it tells us of the new changes being implimented into the mortgage market in the next coming months which will change the way the real estate market. One thing I will comment on is to watch what fees get financed into your mortgage. Although it might seem like your financing $9000 into your mortgage. You must calculate those fees over the amortization of your mortgage. Since it brings the value higher and the amount of fees get amortized into the mortgage, it can really be multiplied significantly over the long term. This is something most of us do not take into account when refinancing or financing our fees or down payment into our mortgage. There are a few things in this article that are very informative and this is some good food for thought for the coming months. Ernie Arrizza

This article was taken from

Last week, Prime Minister Stephen Harper announced a tax break for the closing costs paid by homebuyers.

But he's not promoting a more important federal initiative that takes effect Oct. 15 (one day after the election).

Major changes are in store for people buying homes who can't make a down payment of 20 per cent or more.

Their mortgages must be insured by the lender – and the premium is often added to the borrower's debt.

Here are the new rules, announced July 9 for house deals entered into after Oct. 15.

They apply to residential properties with up to four units.

No more 40-year amortizations for insured mortgages. The maximum amortization is 35 years.

Say goodbye to "no money down" mortgages. A down payment of at least 5 per cent is required.

No government guarantees for high-ratio mortgages that begin with interest-only payments.

Lenders must document the borrower's income and the property value to meet a certain standard.

A previous plan to limit the borrower's total debt service ratio to 45 per cent has been scrapped.

A minimum credit score of 600 is required. That has been reduced from the 620 minimum credit score originally announced.

A credit score is a numerical value that measures a borrower's risk, based on a statistical evaluation of information in his or her credit bureau record.

A lower minimum credit score was needed to accommodate credit-challenged buyers – such as new Canadians and self-employed business owners.

"That's one of the few changes the government made," says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

Lenders will still be allowed to make exceptions up to a certain limit, recognizing that some borrowers with scores below the minimum are otherwise good credit risks.

And buyers can still borrow the down payment from financial institutions that offer cash-back incentives on mortgages.

They can also borrow from registered retirement savings plan.

Here's a question for Harper: When will he update the tax-free withdrawal limits on RRSPs, unchanged since the early 1990s?

You can borrow $20,000 from your RRSP for a house purchase (or $40,000 for couples who both have RRSPs).

But that may not cover the $30,000 down payment on a typical $600,000 property in greater Toronto.

"That 5 per cent is a lot of money," says Dawn Devcic-Erceg, director of marketing at ResMor Trust Co., a Toronto-based lender that deals with mortgage brokers.

ResMor did a survey showing that fewer than half of Canadians (45 per cent) agreed with the tighter mortgage rules and the statement "the federal government needs to protect homeowners."

That statement is wrong, of course.

The government wanted to protect the providers of mortgage insurance – including the government-owned Canada Mortgage and Housing Corp. – whose potential losses were backstopped by a federal guarantee.

Clarification: In my column last Saturday about safe investments, I should have said that eligible deposits are protected up to $100,000 by financial institutions that are members of Canada Deposit Insurance Corp.

Find out if your financial institution is one of CDIC's members at or call 1-800-461-7232.

Ellen Roseman

Ernie Arrizza

Ernie Arrizza

Sales Representative
CENTURY 21 Kelleher Real Estate Inc., Brokerage*
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