Changes to Mortgage rules- rule #2 and #3

Rule #2 All borrowers will have to meet qualification standards for a five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term (such as one- or three-year terms).Current standards for mortgage qualifying are typically based on a lender’s three-year fixed rate (if you’re opting for a variable rate, home equity line of credit, or one-, two- or three-year fixed-rate product, which typically carry a lower interest rate). This qualifying standard has, in the past, been sufficient to protect consumers from rates increasing over the term (at least on paper). Essentially, the government is forcing people to prepare for a likely rate hike over the next five years. Considering the average difference between discounted three- and five-year fixed rates is only between 0.30% and 0.49%, this should truly not have a drastic impact on the average mortgage applicant – if, in fact, the new rules intend to have mortgage applicants qualify based upon discounted rates. It is still unclear if the upcoming alterations are meant to have Canadians approved based upon “posted” five-year rates, which would mean a difference of over 2%!
Rule #3
The maximum amount Canadians can withdraw when refinancing their mortgages will be reduced from 95% to 90% of the value of their homes.This final change will likely have the most impact on those Canadians who have a current government-backed insured mortgage and would like to take advantage of the equity in their home to do some debt consolidation in the future. In recent times, with rates at historical lows, it’s been advantageous for consumers to roll their unsecured debt into their mortgage to decrease monthly payments – so much so that the government has sought an end to this trend of high loan-to-value mortgages.This does not, however, stop consumers from overspending and taking on large amounts of credit card debt. In some cases, the ability to borrow the equity in one’s home to pay off debt has saved people from bankruptcy and kept them in their homes. Hopefully this change doesn’t backfire on the government’s intentions.

Only time will tell if the government’s measures to curb spiking house prices and encourage equity savings will be a positive change for Canadians.Prior to this announcement, there was wide-spread speculation that the government was going to change current mortgage policies to include a minimum 10% down payment, an increase from the current 5%, and a reduction in amortization from a maximum of 35 to 30 years. Luckily for first-time homebuyers in Canada, these rumours have not proven true. As always, if you have any questions about these new mortgage rules or real estate in general, I’m here to help!


Source: Joanne Vickery Dominion lending