Finance minster, Jim Flaherty announced tighter lending standards for mortgages today. His purpose? To prevent homeowners from getting into financial difficulty when mortgage rates rise.
After consulting with major Canadian lenders, he unveiled the plan with three main components:
- All borrowers will need to qualify for a five-year fixed mortgage rate, regardless of whether they choose a shorter term at a lower rate. This will ensure borrowers can make higher payments as interest rates rise.
- The maximum amount when refinancing a mortgage will be lowered to 90 per cent of the value of the home, from 95 per cent.
- A minimum 20 per cent down payment is now required to qualify for CMHC insurance for non-owner-occuped properties purchased as an investment.
These new rules will come into effect April 19, 2010
A number of large Canadian lenders already practise the first peg of Flaherty's plan. After Tuesday's announcement, Bank of Montreal noted that it requires its high-ratio borrowers to be able to qualify using the five-year rate. "While we do not believe that Canada faces a housing bubble, we fully support the minister's actions," the bank said in a release. "Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent."
Canada’s average five-year mortgage rate was 5.39 percent on Feb. 10. In May, it was 5.25 percent, the lowest since 1951, according to Bank of Canada figures. Bank of Canada Governor Mark Carney has pledged to keep his main interest rate at a record low 0.25 percent through June unless the inflation outlook shifts.
What hasn't changed is, you can still buy a home with a 5 per cent down payment.
If you have any questions or would like to discuss this in relation to your real estate plans, please feel free to give me a call.
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