Changes to lending rules and how they affect the Ottawa real estate market
The federal government has been making changes to lending rules for the last few years which according to them are to ensure that Canada does not experience the market collapse that occurred in the U.S. several years ago. Are these moves good or bad? I guess that depends on which side of the equation that you are on. For lending institutions it has been a money maker. They are able to ”follow the new rules” which means that to qualify for a high ratio insuredmortgage ( over 75% lending to value) a borrower must qualify at the posted rate not the discounted rate. So now instead of you getting the lowest rate you are now placed in the higher rate which costs more in interest and has a higher monthly payment. Fair? Not really, but the government feels that this will stop you from getting into debt troubles. You almost wish that they would follow their own lead.
Another change that occurred was that the amortization period was reduced from 30 to 25 years on insured mortgages. Good move? Yes and no. No because it makes the monthly payment higher so less people qualify. Yes because the increased percentage of income that can be used to qualify from 32% to 37% depending on your credit score allows more people to qualify. What this all means is that while your payment is a little higher you are actually paying off more principle so ultimately will own your home faster.