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Mortgage Rule Changes For Jan 2011
Easy to understand SlideShow on the new Canadian mortgage rules.
Mortgage Rule Changes for April 2010
As we had already reported last month, new mortgage rules are being put into effect from next April 19th, aimed at preventing home-buyers across Canada from getting into financial trouble once mortgage rates rise, as it has been anticipated.
Today, we are going to further elaborate on what are the implications of this new set of rules, and how they affect you, as the final customer.
Upcoming Change
INSURED MORTGAGES ONLY
The qualifying rate for any mortgage terms shorter than 5 years will now be the 5-year benchmark rate on the CMHC website.
Effective Date
April 19th, 2010
Reasoning
To protect borrowers from rising rates
Upcoming Change
Max 90% Loan-to-Value on Owner-Occupied refinances
Effective Date
April 19th, 2010
Reasoning
To prevent borrowers from losing their equity in the event their property value decreases. It also discourages borrowers from depending on their home equity to reduce personal debt.
Upcoming Change
INSURED MORTGAGES ONLY
Self-Employed borrowers with more than 3 years in the same business will be required to confirm their income and will not be eligible for “stated income” Self-Employed product.
Effective Date
April 9th, 2010
Reasoning
This product is intended for a small portion of borrowers who find it very difficult to document income- in particular, recently self-employed borrowers. It is assumed, individuals with longer time self-employed are able to confirm their income via a third party validation through financial statements, T4’s and other third party validations.
Upcoming Change
INSURED MORTGAGES ONLY
Maximum Loan-to-Value is 90% for purchase and 85% for refinances for Self-Employed borrowers unable to confirm their income via traditional third party sources
Effective Date
April 9th, 2010
Reasoning
As the associated risk is higher when the borrower cannot confirm income via a third party, a larger down-payment is required to mitigate the elevated risk.
Upcoming Change
Maximum 80% Loan-to-Value on Non-owner occupied rental properties
Effective Date
April 19th, 2010
Reasoning
To prevent investors from speculating about property values and to prevent a large influx of high-ratio financed non-owner occupied properties that may default if vacancy rates increase.
Upcoming Change
INSURED MORTGAGES ONLY
Where rental income is generated from the subject property, 50% of the gross rental income from the subject property may be added-back to the borrowers annual income
Effective Date
April 19th, 2010
Reasoning
To prevent investors from depending on rental income to qualify.
These new mortgage standards are primarily aimed at stopping housing speculators and ensuring homebuyers can adequately juggle their debts when interest rates inevitably rise.
The government has stressed that Canada’s real estate market is healthy, and that the new rules would only stop “negative trends” from development.
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For more information, please contact our team of mortgage brokers which are at your complete disposal. We are here to offer you the best mortgage rates, lowest prime rates, debt consolidation and Canadian housing assistance, and all other facets to help you achieve your dream home.
Bank of Canada mortgage rate hikes not ruled out
Economic recovery now expected to be slower than earlier forecast
The Bank of Canada says it doesn’t rule out interest rate increases in the future, but adds they would need to be “carefully considered.”
Mark Carney, governor of the Bank of Canada, leaves after holding a press conference on the bank’s October monetary policy report at the National Press Theatre in Ottawa Wednesday.(Sean Kilpatrick/Canadian Press)
“At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies, and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered,” the central bank said in its latest monetary policy report, on Wednesday.
The bank said the economic outlook for Canada has changed since its last outlook.
The bank now expects the economic recovery to be more gradual than it had projected in its July report, with growth of 3.0 per cent in 2010. Its previous report called for 3.5 per cent growth.
The bank reduced its forecast for growth in 2011 to 2.3 per cent in 2011, down from 2.9.
“This more modest growth profile reflects a more gradual global recovery and a more subdued profile for household spending,” the report said.
The bank also pushed out until later into the future its estimate for when the economy would return to full capacity. It now expects that by the end of 2012, rather than the beginning of that year as it had predicted in July.
It also extended by a year its prediction for when inflation would reach two per cent, to the end of 2012.
The central bank on Tuesday kept its overnight interest rate unchanged after raising it to one per cent over the course of its last three meetings.
In its October monetary report, the bank said, “This leaves considerable monetary stimulus in place.”
‘Slowest recovery on record’
Diana Petramala, an economist with TD Economics, said the bank’s outlook “represents the slowest recovery on record for the Canadian economy,” justifying low rates through 2011.
Petramala predicted in a commentary that the bank would keep rates on hold until March of 2011, then raise them gradually through 2011 and 2012, “bringing the overnight rate to two per cent and three per cent at the end of each respective year.”
The bank also renewed its concern about the issue of Canadians’ growing household debt as both a risk to the recovery and a drag on increased consumer spending.
At a news conference, bank governor Mark Carney raised the prospect of further regulatory changes by governments to discourage Canadians from taking on too much debt. In February, the federal government had introduced rules to tighten mortgage lending.
Carney said that while responsibility for not taking on more debt than they can handle begins with Canadians themselves, “authorities, broadly speaking, have to be vigilant.”
Banks and other lenders must ensure “that the debts their clients are taking on can be serviced in the fullness of time,” Carney added.
The bank also warned of the potential hazards if countries try to weaken their currencies in order to protect their export markets.
“Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery.”
The missing pieces in banks’ real-estate math
The debt threat facing this country begins at home.
Mortgages are by far the biggest component of a national debt load that has recently prompted warnings from the Governor of the Bank of Canada and one of the country’s largest banks.
Their concerns raise questions about the way in which financial institutions ensure people can afford the mortgages they need to buy a home. Raising a family and maintaining a home require finesse and constant financial maneuvering. And yet, the housing affordability measures used by bankers are strikingly simplistic. Read more
‘Excessive’ personal debt a concern
The Bank of Canada isn’t the only one worried about ballooning debt levels.
Personal debts have become “excessive” and are a growing cause for concern, Toronto-Dominion Bank warned Wednesday.
Economic fundamentals suggest an appropriate personal debt-to-income ratio in the coming five years should be between 138 and 140 per cent, it said. The current ratio is 146 per cent and TD believes it will grow even further, to 151 per cent. Expressed another way, TD estimates that Canadians will soon owe $1.51 for every dollar of disposable income.