Government of Canada tweaks rules on mortgage qualification

Earlier this week, a few changes to mortgage qualification in Canada that would be implemented on April 19th, 2010 were announced by Finance Minister Jim Flaherty. These changes include an adjustment in the qualifying rate used in mortgage qualification, a reduction in the amount of equity Canadian Homeowners will be able to pull out of their homes, and an increase in the down payment requirement for those looking to purchase rental/revenue or investment properties.

Here's an explanation, and my take on these changes:

1. Borrowers will need to qualify using a 5-year fixed rate regardless
of what term they choose. If you want a 1.95% variable rate, for
example, you will need to show that you can afford payments at the
lender's 5 year rate. Since banks use their posted rates(normally at
least 1% higher than what you eventually get down to after
negotiating) to qualify potential borrowers, this change will have a
much greater effect on them as opposed to some of the lenders
available through mortgage brokers(who only have 1 fully discounted rate
available). While it has not yet been clarified as to whether ALL mortgage lenders will be required to use the same rate, my understanding is that each lender will be using their own posted bank rate.

2. No longer will you be able to refinance your home to 95% of it's
value. 90% will be the new refinance maximum. The bad thing about this
change is that homeowners will no longer be able to replace as much
high interest credit debt with relatively lower interest mortgage
debt. The good news is that upon sale, you will be more likely to have some equity left in the home.

3. People buying non-owner occupied rental properties will need to put
down 20% to get an insured mortgage, versus 5% previously. The idea
behind this move is to reduce speculative purchasing in the Canadian
Market, and provide more breathing room to investors in the event of market property value swings.

Keep in mind that these changes will only take effect on April 19th,
2010 --meaning buyers still do have a little time to get into a
home/refinance/buy an investment property before things change. One
thing of note however, is that most mortgage lenders in Canada are
likely to implement these changes BEFORE April 19th in order to ensure
that all files are being underwritten in accordance with the new
legislation on the effective date of change.

For more information regarding these changes, call one of the qualified mortgage professionals at Alberta Mortgage @ 780-479-2222 or visit www.albertamortgagecentre.com today.

Variable Rate Mortgage Spreads Expected to Get Better

Posted by Anuj Gupta, AMP, BComm of Alberta Mortgage

In 2008, it appeared that Variable Rate Mortgages had changed forever. The consensus opinion among industry experts was that Canadian Home Owners would not see "Prime - " for a long time. The prediction was that it would at least be a few years before the market would even see variable rate mortgages @ Prime. However, with increased competition and returning stability it appears that Canadian Homeowners can expect a much sooner return to the days of deeply discounted Variable Rate Mortgages.

Shortly after the initial "market meltdown of 2008" in early 2009, many Canadian mortgage lending institutions either increased their variable rate spreads as high as Prime + 1.00%, or abandoned variable rate lending terms altogether. It appeared that things had changed forever. However, in the 3rd Quarter of 2009 we saw heavy competition in the Variable Rate Market return. Lenders began aggressively pricing their Variable Rate Mortgage Products, and have continued the trend. Presently, Variable Rate Mortgage terms have fallen to Prime - 0.30%*, and swing of 1.30% in 12 months!

As 2010 continues, I would expect to see this trend continue. Of course, anything can happen --but the market is indicating a return of deeply discounted variable rate mortgage terms.

For more information regarding variable rate mortgages, or to be prequalified call one of the qualified mortgage professionals at Alberta Mortgage @ 780-479-2222 or Apply Online @ http://www.albertamortgagecentre.com.

*subject to qualification criteria.