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.