As you are probably aware amendments to mortgage-lending rules were announced Tuesday February 16, 2010 by federal Finance Minister Jim Flaherty. Three changes were unveiled effective April 19, 2010 intended to help prepare borrowers for interest-rate increases widely anticipated for later this year. But is it going to stop there?
Homeowners refinancing their home will be able to withdraw a maximum of 90 per cent of the property's value; down from 95 per cent. This is no big deal, however people looking to buy properties of one to four units for investment purposes will now require a minimum down payment of 20 per cent to get government-backed mortgage insurance could find themselves out of the market entirely!
But where the major impact on the housing market will be felt is if the minimum down payment is raised to10 per cent from the current five per cent and amortization periods limited to 30 years instead of the current 35 years. If the government continues to intervene, and raises the minimum down payment to10 per cent, look out for the fallout. This will kick a lot of home buyers out of the market, especially first timers. If we take 10% of the average January sales price of $237,642, the down payment would be $23,764 as opposed to $11,882 at 5%. Other out of pocket expenses are legal and registration costs that could be an additional $3500.00 or more. $27,000 to $28,000 is a lot of money to come up with out of pocket. Imposing a 10% down payment could prevent 20% to 25% of the buyers from buying homes! An intervention of this nature will have a direct negative impact on the whole housing industry and the entire economy locally and nationally.
Canada Mortgage and Housing Corp. (CMHC), a crown corporation, supplies about 75 per cent of that coverage in Canada. I think the government should privatize CMHC and withdraw completely from the mortgage-insurance market. The housing market is probably the largest single contributor to the economy. It would flourish well without government intervention. I strongly recommend the government leave the current five per cent down payment, the current 35 year mortgage amortization and interest rates alone.
If it aint broke, don’t fix it.