New Canadian Mortgage Rules

As of April 19th 2010, new Canadian mortgage rules have been brought into place by the administration. The government has made certain key changes to avoid any kind of housing market crisis and ensure that homeowners do not amass a big debt. The rules will have a significant impact on real estate investors. If you are a new home buyer looking for a mortgage in Burlington, Ontario, then you will have to meet all the new qualification requirements. Here are some of the new mortgage rules that will now affect your home purchase:

Rates of qualification

If you have to qualify for a variable rate mortgage in Burlington, Ontario, you will have to show that you can afford to make payments at higher rates. The government's justification for this change is that it will make sure that borrowers will be able to deal with an increase in interest rates. This new rule has been welcomed by the industry.

If you are a borrower who has put down anything below 20% of your home value, you will have to qualify with a new 6.10% rate compared with the previous rate of 3.84% for a $250,000 mortgage amount. This is applicable for variable rate mortgages with loan terms between one and four years. Things remain the same for mortgages with loan durations between five to ten years.

Almost all major banks have applied this new rate of qualification for all fixed mortgages extending from one-to-four years without taking LTV (loan to value) ratio into account. Small-scale lenders are applying the new rate only for high ratio mortgages.

Refinancing

The new rule states that now you can refinance your home to a maximum of 90% of its value compared with the previous maximum of 95%. The downside to this new rule is that borrowers will have to put in more of their money into a home purchase. The good thing about the change is that it will ensure that a big enough equity is maintained in the home, which will be helpful if there is a fall in house prices. It will also prevent home owners from accumulating too much debt and falling back on home equity loans to pay it off.

Rentals financing

You will now have to put down 20% as compared to the previous 5% to get insured financing on rental properties. The whopping 15% hike is quite a shock as this will discourage creation of rental housing. It can also trigger a rise in rents in the near future and put a damper on many Canadians' investment plans.

For many of the prospective first-time home buyers, the new rule on qualification will not make a huge difference as lenders were already making sure that borrowers could afford to make payments before they were offered mortgage deals. But if you were going to just marginally qualify for a mortgage in Burlington, Ontario, you might have to wait until your financial situation improves.


For more information on second mortgage or mortgages in Canada, contact Canadian Mortgages Inc