The Canadian government made changes to the approval process effective October 17th, 2016, for buyers who have less than a 20% down payment. These buyers are now required to qualify under higher interest rates than previously. We have created a short video to explain the new mortgage rules as they pertain to CMHC, and other loan insurers in Canada. Here is the video:
It remains to be seen as to what effect this will have on our booming Canadian real estate market, but for high-ratio buyers, they will now qualify for about 20% less than they did prior to October 17.
Mark Carney and the Board of Governors announced today that they are leaving Canada’s key monetary policy rate unchanged at 1.0%. Correspondingly there will be no change to Canadian Prime rates at the current time.
The Band of Canada indicated that both the Canadian and global economic recoveries have proceeded largely as expected, however there are still risks: The Canadian recovery faces risks if the Canadian dollar continues its high flying ways (a strong currency makes it difficult for our exporters to do business).
The U.S. recovery faces challenges due to tapped-out consumers in that country. High debt levels are constraining spending.The global expansion faces risks from so- called “peripheral” economies – those seeking continued support via various bailout programs.
Carney noted that, although commodity prices have come off their highs recently, the Bank expects them to remain at elevated levels for the foreseeable future.
One new factor is the effect of the March disasters in Japan, which have caused temporary supply chain disruptions throughout developed economies.
Canadian growth is expected to soften slightly in the 2nd quarter of 2011, with a rebound in the second half of the year.Total CPI inflation is running at a hefty 3%+, but is expected to moderate due to currency effects.
Carney gave no real clues as to when to expect rates to begin increasing, but they are coming – the Bank indicated that some of the considerable monetary stimulus currently in place will be eventually withdrawn.
It now looks like the expected July rate hike is off the table and and any interest rate increase will be pushed out further into the fall. Mr. Carney will probably want to get at least a preliminary look at how 3rd quarter GDP unfolds before making any decision to hike rates.
With no change to prime rates today, or in the foreseeable future, Canadians should be tempted to resume spending, which could translate into continued use of credit by consumers. With mortgage rates continuing at historic lows, some bump to the housing sector is expected. This could lead to increased mortgage (and house-buying) activity.The beat goes on……
Jim Flaherty, Canada’s Finance Minister, announced changes to mortgage lending rules today which will have an effect on the Canadian real estate market.
1.) the maximum amortization period for new government-backed insured mortgages will be reduced from 35 to 30 years.
2.) the maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85% per cent from the current 90% per cent.
3.) The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit. (not in force until April 18, 2011)
These changes will take effect on March 18, 2011. Overall this is not bad compared to what had been speculated. The one which will have the greatest effect is the lower amortization period, as it reduces borrowing power by the purchaser.
If you are a buyer, or are considering refinancing your home, it is probably a good idea to speak to your mortgage professional asap.
There’s something new on the Canadian mortgage scene – hybrid mortgages – also known as 50/50 mortgages – they include an equal mix of fixed-rate and variable-rate components within a single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility and lower cost of a variable rate.
Although in recent times, most mortgage experts have considered a variable rate mortgage as the obvious choice to save consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be something to consider.
In a nutshell, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.
If you opt for a 50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.
The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:
- Would normally go fully variable but are afraid prime rate is at its bottom
- Aren’t comfortable being locked into a fully fixed rate
- Can’t decide between a fixed or variable mortgage
Some features of the 50/50 mortgage include:
- 20% annual lump-sum pre-payment privileges
- 20% annual payment increase ability
- Portability (the option to transfer your existing loan amount to a new property without penalty)
This information is courtesy of Sarah Makhomet, my good friend and expert mortgage broker at Dominion Lending. As always, if you have questions about the 50/50 mortgage product and whether it’s right for you, or any other mortgage-related questions, we welcome your comments!
Created a summary “In Plain English” of the new rules from CMHC pertaining to mortgage loan approval in Canada….these new rules will affect all home buyers across Canada, but especially self employed people, as well as commission sales people….link to my Simple Guide to CMHC New Rules April 2010……..
Finance Minister Jim Flaherty Tuesday announced tighter lending standards for mortgages, saying that while the housing market is “healthy” the moves are needed to “help prevent negative trends from developing.”
Under the new rules, all borrowers will need to meet standards for 5-year fixed-rate mortgages regardless of whether they’re seeking a loan with a lower rate and shorter term.
Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on “speculative” investment properties.
“There are no definitive signs of a housing bubble,” Mr. Flaherty said. “We think we’re being pro-active in the three steps we’re taking today.”
Frank Techar, the President of Personal and Commercial Banking for BMO Bank of Montreal, welcomed the announcement.
“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” Mr. Techar said in a statement. “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. Currently, we require high ratio mortgages to be able to qualify using the 5 year rate.”
In a release, the finance department indicated that the three new changes to the mortgage insurance guarantee rules are intended to take effect April 19, 2010.
In reference to the tightening of re-financing rules, Mr. Flaherty said this will encourage Canadians to build equity in their homes instead of tapping that equity as a source of cash.
“This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up. We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than as a vehicle for quick cash,” he said.
In his comments on the third measure, Mr. Flaherty said the hike in minimum down payments for such properties will help keep prices from climbing too high.
“We will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. This will discourage the kind of reckless real estate speculation that can drive prices to unsustainable levels which does not serve Canadian home buyers,” he said.
“We’re not aiming here at investment properties,” Mr. Flaherty added. “What we’re getting at is the speculation in multiple-condo markets, in particular.”
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