New Mortgage Rules

Well, you've probably heard that Canada's Finance Minister, Jim Flaherty announced some new rules for mortgages in Canada. The hope is to slow the real estate market down a bit and keep people from overextending themselves in credit.

Here's the gist of the rules....I'm by no means a mortgage specialist, so it's always good to go to the expert before making any decisions, but here's my take...

*All buyers will now need to qualify for a 5yr fixed mort. rate. Whether you're going to end up with a 3 yr or a variable rate, you'll be required to meet the standards of that higher interest rate. This way you'll be prepared for the higher rate when it comes. Interest rates are expected to start increasing later this year.

*As of Oct. 15th there will be no more opportunity to get a 40 yr nothing down mortgage. There will be a limitation to a 35 year minimum 5% down. If house prices go down (as they're expected to) then this will help limit the number of people walking away from houses that they owe more on than they're worth, which is what was happening in the US market.

*Lowered max amount that Canadians can withdraw in refinancing their mortgage from 95% to 90%. Limiting those who have been taking out almost all of their equity to spend on other things.

*increasing the minimum downpayment on non-owner properties to 20% down. This will affect those who have been thinking about buying rental properties. Now they'll need more money to put in if they'd like to purchase.

Essentially, these new rules are intended to keep Canadians from overextending themselves with credit that they may not be able to afford when interest rates go up and house prices go down.

Personally, I think they're late, but better late than never. I tend to advise my buyers to be sure that they're doing the math themselves and not just going by what the lenders will give them. When buyers are pre-approved they receive a max amount they can borrow. Then I tell people to take a look at the numbers and add in the fact that they may want to vacation, go to the movies, give, .....EAT!!!....and the max number will likely be less. I like it when I hear buyers say that they've been preapproved for $300,000, but want to keep their max at $250,000.

Cautious buyers are wise buyers.

Feel free to email me if you have any questions! Like I said, I'm not a mortgage expert so it's always good to consult with one before making any decisions on your own finances!