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Real Estate News: Summary of government’s changes to CMHC backed mortgages

February 16, 2010

Amidst all of the speculation surrounding the current status of our hot real estate market, Canada is now implementing three changes to mortgage rules in an effort to help protect the real estate housing market and reducing the risk or impact of a housing bubble in Canada. Finance Minister Jim Flaherty announced today three changes to the standards governing government-backed or CMHC mortgages, that come into force April 19, 2010.

Here are a summary of the changes:

1.  QUALIFYING FOR A FIVE-YEAR RATE:

The adjustments to the mortgage framework will require mortgage insurers to ensure that new borrowers qualify for a five-year fixed rate mortgage when calculating the gross debt service and total debt service ratios. The measure is intended to protect Canadians by providing them with additional flexibility to support mortgage payments at higher interest rates in the future.

My thoughts: Most prudent lenders do this already – in essence if you want a longer amortization mortgage at a fixed rate the banks and lenders will need stronger financial security to back it up.  This will affect alot of people as they refinance after the April 19th effective date for the new changes.


2.  LIMIT THE MAXIMUM REFINANCING:

Borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95% of the value of the property. The recent changes will lower the maximum amount of the mortgage loan in a refinancing of a government-backed high-ratio mortgage loan to 90% of the value of the property, consistent with the principle that home ownership is a tool for savings.

My thoughts: This change is really something that should have a minimal impact.  Really, in my opinion they should have made 90% LTV the threshold back in 2008 when they first dropped it to 95%.

3.  DISCOURAGING REAL ESTATE SPECULATION:

This measure will require a minimum down payment of 20% for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation. At present, borrowers may purchase a residential property with a 5% down payment. The change will require a 20% down payment for small non-owner-occupied residential rental properties. Borrowers purchasing owner-occupied residential properties which also include some rental units (such as a duplex) will still be able to access government-backed mortgage insurance with a 5% down payment.

My thoughts:

This change is in my view the most impact full or meaningful.  With all the activity in new condos and investors taking advantage of the real estate prices (prior to the recent increases) this change isn’t looking to hurt the true, seasoned real estate investors.  What it should help to limit are the speculators that look to have next to no exposure and the go for the quick flip on a condo, leaving all of the risk on the heavily leveraged mortgage amount insured by CMHC.

Overall today’s changes aren’t going to bring the real estate market to its knees.  As much as there are changes, I think the message is intended to have as much an implied effect as the mortgage rule changes themselves.  It brings reality to the need for caution and hopefully will give the home buyer or investor pause to consider and think before they leap.  As a Realtor, I will always advise my clients to err on the side of caution – it’s just the way I’m wired.


Source: ( Financial Post ) February 16, 2010

Read the full press release: Government of Canada Takes Action to Strengthen Housing Financing” from the Canadian Department of Finance. (February 16, 2010)

If you have questions concerning the new mortgage restrictions announced today or how it will impact your real estate situation, comment on this article or email me and I’d be happy to discuss your real estate situation.


Ryan Chelak is a real estate broker in Oakville & Mississauga and longtime Oakville resident. Subscribe to my blog to keep up to date on local news, information, events and of course everything you want to know about Oakville & Mississauga real estate.

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One Comment leave one →
  1. February 21, 2010 2:35 pm

    Re: the investors rule and 20% down. As a relatively new investor myself with only 2 properties this will definitely impact my ability to invest in further rental properties. I have never been interested in “flips” or a fast buck, but simply investing in rental revenue properties. Now just to get into a small $100K home or condo in “affordable Winnipeg” I will need to have in my hand a minimum of $20,000 to get into another property. This completely stalls if not stops my future plans for investing. I cannot fathom how this would NOT slow the market or real estate sales unless people have been stuffing their mattresses with cash -money they certainly do not have- during this recent recession.

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