New Finance Rules

The new rules, coming into effect April 19, 2010, have been long anticipated.  Personally, I feel the rules won't harm the average home buyer, or even home owner.  It will put a damper on sales in the investment properties for potential investors.  The way I read each point is as follows:

Point # 1 , its a certainty, that the rates are going to rise in the coming months or years.  With Variable rates around 2%, fixed around 4%, qualifying and expecting a variable mortgage to stay where it is, is craziness.  Making home buyers qualify for the 4% fixed rate, simply means that you'll still be able to financially afford your home if and when the rates do increase past the current variable rates.  Never before have we seen rates this low.  This will save first time home buyers from becoming mortgage poor due to mis-calculations in mortgage affordability.

Point # 2, by requiring you have 10% equity (not when you purchase your home, only when you refinance to withdraw equity), this will lessen the possibility of foreclosures that will cost mortgage companies and insurers to take a loss on a property.  10% fluctuation in market value can easily eat up your equity in a down market, but gives you and lenders room to work should the property come to foreclosure.  The less 'loss' insurers take, the less insurance that will be needed in the long term.

Point # 3, if your planning on buying more revenue properties to add to your portfolio, especially if your new to the investment game, you best have them purchased prior to April 19th, 2010.  Currently, you can purchase properties with as little as 5% down, that changes to 20% down.  Simple math, you can buy 1 for every 4 you planned prior to the change.  This again protecting against foreclosure from would be landlords who make bad decisions, or take on more than they can handle.  Now they'll need to think long and hard prior to making that offer.  I expect a slowdown in resales of revenue properties in areas where rentals are in demand. 

Below is the rules as stated from the Minister of Finances Office.

  • Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
  • Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
  • Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

    Minister of Finance Jim Flaherty announced measured steps to support the long term  stability of Canada's housing market on Tuesday, February 16, 2010.

    Larry Jago

    Larry Jago

    CENTURY 21 Westman Realty Ltd.
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