Wednesday, February 24, 2010

New Mortgage Rules quick reference

You've likely seen media coverage on measures the government of Canada announced to help keep the housing market stable for the long-term.

There are three different changes. All are aimed at keeping the housing market stable and consumers' debt loads manageable, even if interest rates rise. Discussions are still going on that could fine-tune changes, but here's a brief summary of all three updates:

First, in order to qualify for any kind of mortgage, borrowers will need to have the income to qualify at the five-year posted rate - even if the rate they're being offered is less than the posted rate, whether for a fixed or variable-rate mortgage. For example, we currently have a seven-year mortgage on special at 4.95%, but a borrower would need to meet the income test to qualify for the five-year posted rate of 5.39%.

Second, investors who want to buy a home that they don't plan to live in will have to make a minimum down payment of 20%, up from the 15% currently required.

And third, homeowners who want to refinance will only be able to borrow 90% of the value of their home, down from 95%.

These changes will take effect for transactions started on or after April 19, 2010.

What do these changes mean for home buyers?

The first rule change will be felt the most - affecting approximately 29% of borrowers. According to TD Economics, based on the national average home price of $337,000, a buyer with only 5% down would require roughly $9,200 more in annual income to qualify under the new rules. To buy a $200,000 home, potential buyers with only 5% down would need $5,500 more in annual income.

As a result, some customers may choose to buy a less expensive house or consider a different type of mortgage product. Others may decide to delay buying.

The lower cap on how much a home can be refinanced for will help keep customers debt at a manageable level. And finally, the rule about mortgages for investment properties needing a larger down payment will help limit the effect of speculation on the market.

1 comment:

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