Understanding The New Mortgage Rules
This week, we’ll briefly go over the three ‘new’ mortgage rules for Canadians, coming into effect in April, and their impact on the real estate market. It’s actually fairly easy to understand, and for those living in Toronto, you’ll find that virtually nothing has changed. As always, if you have any questions, feel free to email me and we can discuss. Here goes!
(1) All borrows must qualify for the 5-year fixed rate.
This was already in effect at most lending institutions anyway, so no change here. This just means that even if you’re going to choose a variable rate mortgage – currently at 1.75% – you will still have to financially qualify for the same mortgage at the 5-year lending rate (3.64% or so, right now). Since the higher, fixed rate is more difficult to qualify for, this is simply designed to keep folks who are credit risks at the 5-year rate from obtaining ‘cheaper’ mortgages.
(2) You can only refinance up to 90%.
If you are going to refinance your home mortgage and withdraw capital for other investments/needs, you previously were able to take out up to 95% of the appraised value. Now you will only be able to take 90%. Basically this rule keeps you from over-leveraging yourself and is intended to insure a buffer zone exists before mortgagors are ‘upside down’ in the event that prices decline. Unless you are make highly leveraged (more than 10x leverage) growth a staple of your strategy, this is not likely going to affect you.
(3) You need 20% down on investment properties.
Not really a change here either. Most often you would be required to have at minimum 20% down already from any reputable Toronto lender (think banks, etc). This is pretty straight forward: you need to put enough of a down payment on a speculative property to insulate you against shortfalls, price declines, etc.
The rule ‘changes’ will look pretty familiar to anyone who has done real estate business in Toronto before. Most lenders, at least in this city, were already adhering to these policies voluntarily. Perhaps the greatest effect they may have here is the psychological effect of causing borrowers to perceive a tightening market. Only the next month will tell, though.
Tell your friends! They’ll thank you. Call me if you’re interested in learning more about buying or selling Toronto real estate.
Until next time,
Shaun Nilsson
1-888-712-7888
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@ March 27, 2010 at 12:06 pm
Wade says:
yeah I’m still not sure about the rule changes I’m still up in the air about it.