The mortgage market is changing.
After much talk since mid-December about possible mortgage rule changes, the Finance Minister finally announced the changes at a press conference. He re-iterated that the housing market is healthy and stable with 2/3 of Canadians owning their own home. The housing market has been performing very well providing Canada with a competitive advantage over other countries, and helping our economic recovery, driven by a stable banking system, low interest rates, and a growing population.
The Government wants to encourage ownership, assist first time home buyers, and they believe that previous regulatory changes helped avoid a US style bubble. These changes were made in 2008 with the government increasing the minimum down payments needed to qualify for a mortgage with CMHC default insurance from 0% to 5%, decreasing the maximum amortization period from 40 years to 35 years, and requiring standard loan documentation.
The 3 changes to mortgage regulations as precautionary measures are as follows:
1. All borrowers need to qualify for a 5 year fixed mortgage even if they choose a lower mortgage term such as the current 1 year fixed @ 2.09%, as Canadians don’t need to not take on higher financial risk due to lower mortgage rates
2. Lower maximum amount Canadian homeowners can refinance from 95% to 90% of the total value of their homes. Government wants to encourage home equity investment, and discourage people doing mortgage refinancing for cash.
3. Minimum 20% down payment for house buyers looking to buy investment properties and to get government insurance through the CMHC
These three new changes to the mortgage insurance guarantee rules are intended to take effect April 19, 2010.
He also went on to say there are no signs we are in a housing bubble, and that pro-active regulatory guidance can help avoid problems in the future. This will help protect Canada’s economy, and encourage prudent home ownership, with a family occupying their home and paying down their mortgage, and he wants people to stop using their homes as “an ATM” through refinancing to get out more cash. He also wants to curb the housing market speculators who believe prices will continue to increase and are buying up investment properties (such as buying 4 condos in a development and only living in 1), which reduces supply, and drives up prices.
He didn’t move to increase the current amortization period from 35 years or increase the minimum down payment needed from 5%, which he mentioned that he was considering in the past. Those would have been much more drastic changes, which could have killed the housing market rather than simply encourage home owners to act more prudently.
Check out the latest 5 year fixed rates you will need to qualify for in order to get a mortgage.