Federal Government Changes Mortgage Rules

Federal Government Changes Mortgage Rules Photo      Jim Flaherty and the Government of Canada announced yesterday three changes to the standards involved in Government backed mortgages:

  • Buyers must now qualify at the 5-year rate
  • Home owners can now refinance up to 90% of their home's value (down from 95%)
  • Speculative buyers must now come up with at least 20% down (up from 5%)

It'll be interesting to see the effects these rule changes have.  Certainly the tightening will be felt by those looking to purchase and flip.  It's also possible that the changes (to be implemented April 19th) will add to the push already felt by some buyers/sellers to make a move before the HST comes into effect this summer. 

Following is yesterday's release from the Department Of Finance Canada:

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

  • Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
  • Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
  • Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

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