Mortgage Insurance Rules Change as of April 19, 2009
I am going to explain this in my own words for everyone so I can help ensure this change in the mortgage world is fully understood. There are 3 large changes to the mortgage industry that are to take place as of April 19, 2009 announced by Jim Flaherty, the Federal Finance Minister of Canada.
- All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term;
(Ie. You want to do a low rate 2 variable mortgage at a low percent, you still must qualify for a 5 year fixed term mortgage at a higher rate)
- The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home;
(Ie. Your property is worth $200,000 and you have $10,000 in equity. You cannot pull out your equity. At $200,000 any amount over $20,000 you would be allowed to pull out. An example would be if you had $30,000 in equity in a $200,000 home, the most you could pull out would be $10,000)
- Non-owner occupied properties will require a minimum down payment of 20%.
(Non-owner means rental property. A $200,000 condo would now cost you $40,000 downpayment, whereas it used to cost $10,000 down.)
There were no changes to down payment requirements or length of amortizations for owner-occupied residences. There may be in the works but not just yet.
These changes are being put into effect for a few reasons.
1. To help eliminate real estate investors or ‘speculators’ from driving the prices of the market up by buying real estate for rental purposes with very little money down. I already see a large number of people who have come to me for help but I am unable to sell their real estate (usually condominiums) because they have bought with very little down and took on more than they can bare financially.
2. These changes encourage Canadians to build equity in their homes, not pull it out for other expenses. Real estate is a great vehicle of saving money and many in the current market do not treat it as such, using it for quick cash. Bad!!!
3. This heads off a way to cool down the recent market bounce back. It may seem like a great thing that real estate has shot back up but affordability is again tougher on many home buyers, which if it were to continue, would again lead to a large market downturn like in 2007-2008.
If you know anyone looking to get into the market, I would love to be introduced to them to help them before these changes affect the real estate market, I am never too busy for your referrals. If you have any questions, feel free to contact me and I will help map out this a touch more. Also, click the link below for an article from the Globe and Mail for the complete story.
http://www.theglobeandmail.com/report-on-business/economy/jim-flaherty-unveils-new-mortgage-rules/article1469432/Finance
Your friend in the business,
Darin
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