The Finance Minister tightened mortgage rules will have a rippling effect on the GSA housing market. It’s unlikely to be a deterrent for most, but it could make it harder for those on the fringes to qualify for mortgages. However for those that do qualify, it could reduce the size of that mortgage, meaning the buyer may not be able to afford the house they want. If consumers are forced to look at less expensive properties, depending on the supply of inventory, it could end up softening market prices or even worse, they won’t be able to afford to buy anything at all. Not good news for buyers or sellers.
Under the old rules a lender required the borrower to be able to make the monthly payments on a three-year fixed-rate mortgage. Under the new program, borrower’s qualifications are based on a five-year fixed-rate mortgage.
The consumer affected the most is the investor. Lenders will require a 20% down payment of the purchase price instead of 5% to get a government-backed mortgage to buy an investment property. Ouch, that’s really going to hurt!
Rules go into effect April 19, 2010, but lenders are likely to begin enforcing most of these measures immediately. Most lenders will require a new credit test for any CMHC-backed mortgage.
Let’s hope the powers don’t overreact and close the housing market down by putting in more stringent rules. Among the changes we don’t want to see is requiring a minimum10 per cent down payment, further reduced amortization periods and increased interest rates.
The housing industry is probably the single largest contributor to the Canadian economy, from the lumber industry to the manufacturing of all the products that go into a home. If the housing ecosystem is thrown out of balance, it could have a detrimental effect not only for buyers and sellers, but for the whole economy.
Before you decide to purchase a home, consult a mortgage professional to answer all your questions.