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.

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.