April 17, 2010

This Monday, new rules kick in that will make obtaining mortgages a little more difficult for the consumer and safer for the lender.

Canada has been insulated from the housing crisis plaguing the United States largely because of the conservative lending practices here. With these new rules, the Canadian mortgage industry will become even more resilient to defaults and foreclosure.

Federal Finance Minister Jim Flaherty announced the new mortgage rules in February amid warnings that some homebuyers were taking on too much mortgage debt as house prices soared across the country and could be in trouble if rates rose.

“There is no evidence of a housing bubble, but we’re taking prudent steps today to prevent one,” he told a news conference in Otttawa at the time.

Under the new rules, the federal government will:

-Require all homeowners meet the borrowing standards for a five-year fixed-rate loan even if they choose variable or shorter-term loans.

-Lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent from 95 per cent of the value of their home.

-Require a minimum 20 per cent down payment to qualify for CHHC insurance for non-owner-occupied properties acquired as an investment – a move aimed at cooling real estate speculation.

It will be interesting to watch the effect of these changes on Canada’s hot housing market.

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