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New Mortgage Rule Countdown - How it will Impact Home Buyers and Owners
We will probably see another surge in sales as First Time Buyers rush to qualify for a mortgage before the April 19th new mortgage qualification changes take effect.

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The new rules are mostly aimed at speculators trying to buy multiple properties, and homeowners trying to refinance to the max.

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There seems to be some confusion on the impact the new tightening rules will have on homebuyers in general, whether you are a first time buyer or second time buyer etc.

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Basically when purchasing a home, we are going back to the old style of qualifying as I remember from years ago.n

Qualifying "buyers" will still be permitted to purchase with five percent down if it will be their principal residence.  Yes, don't worry, the 5% down program is still available through CMHC, but your qualifying will depend on the monthly payments based on a 5 year closed mortgage term.   That doesn't mean you are required to take a five year product, feel free to explore the many terms available in the marketplace - from a variable mortgage, one year, to 10 years if you choose.  Simply you will have to prove to the banks that in the worse case senario you would be able to maintain a 5 year fixed mortgage payment.xcx  

 

 

The Impact of the New Mortgage Rules on Existing Homeowners:
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This is where the ten percentage confusion comes in.   Existing homeowners, in recent years where able to re-finance and take out as much as 100% of their equity in their homes to consolidate debt.    Under the new rules there will be a cap of 90% equity / refinance on existing mortgages.   In the past, some consumers would accumulate debt and every few years, refinance and increase their existing mortgage.   Without the ability to easily refinance to the max we might become more watchful of interest rates credit cards charge and the impact of "do not pay" until next year plans if we don't think we will have the saving to pay off the item.  The Government is basically saying, leave at least 10% of equity in your home as a form of savings. 

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The Article by Julian Beltrame of The Canadian Press is the most through report I have seen and can answer your questions about the impact the new rules will have on investors in general.    Buying an investment property will take more savings, 20% more after April 19th.

  


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OTTAWA - Finance Minister Jim Flaherty is tightening mortgage rules to crack down on speculators and discourage homeowners from taking on too much debt. n

The minister said he is responding to growing concerns that Canada's housing market is overheating, although he stresses there is no bubble in Canada's real-estate market - yet. nn

"There's no compelling evidence of a housing bubble, but we're taking proactive, prudent, measured and cautious steps today to help prevent a housing bubble," Flaherty said Tuesday. n

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The finance minister says all borrowers will need to meet stiffer criteria to take out mortgages. n

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In order to qualify for an insured mortgage, borrowers will have to meet the standards for a five-year fixed-rate mortgage even if the interest they are paying is less. n

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The government will also limit the amount Canadians can borrow on their homes from the current 95 per cent of the value to 90 per cent.
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  • And to discourage speculation, prospective homebuyers who want to purchase a property for rental purposes will have to come up with a 20 per cent downpayment, instead of the current five.

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Flaherty said he has been told anecdotally of a tendency among speculators to purchase multiple condominium units and not live in any of them, which he says drives up prices overall. n

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"We're not aiming here at investment properties" such as rental units, he said. "What we're getting at is the speculation in multiple-condo markets, in particular." n

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Economists warned, however, that it will be difficult for lenders to determine on which side of the line buyers fall. n

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For most Canadians, particularly first-time owners who don't have a lot of cash to put down, the change that will most impact their home-buying choices is the higher affordability test used by banks to determine credit worthiness.

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Already, banks use the three-year fixed mortgage rate to test whether a prospective homebuyer can afford to meet payments even if the actual interest being charged - such as in a floating mortgage - is significantly less. Now, the test will go to the five-year rate, which is about one percentage point higher.

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In practical terms, it means that on the average $337,000 home, homeowners will need to have the financial means to absorb an additional $2,500 in mortgage costs a year, the TD Bank says.

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Flaherty said the additional cushion was needed because interest rates, which are at historic lows, have only one way to go - up. Most economists expect the Bank of Canada to move off its lower-bound 0.25 per cent policy rate in July.

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But the change does not effect mortgage costs, noted TD's deputy chief economist, Craig Alexander.

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"All this change does is limit the size of the mortgage you are going to be able to get; it doesn't prevent people from buying homes, it doesn't drive a lot of new homebuyers out of the market and it doesn't lead to higher payments," he explained.

"It means if you are thinking of buying a $400,000 home, you may have to buy the $350,000 one."

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In a release, the Canadian Association of Accredited Mortgage Professionals said it supports the amendments, calling them preventative measures against possible future risk.

  • The new rules are intended to come into force on April 19.

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In recent months, economists have advised the minister to clamp down on the size of mortgages Canadians were taking on, and to cool the housing market which is at record levels in both prices and sales.

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Some wanted the government to take firmer steps, including raising the minimum downpayment to qualify for a government-insured mortgage to 10 per cent from five. Another suggestion the government could have taken was to reduce the amortization period from the current 35 years, which would have raised mortgage costs.

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The minister, however, said he wanted to choose a middle ground at this moment, but left open further measures if housing prices approach bubble territory.

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"On the one hand we don't want to discourage Canadians from home ownership," he said. n"On the other hand we do want to discourage a tendency by some to use their homes as an ATM machine, and a tendency by some to buy three and four condominiums by way of speculation. These are not the kind of steps that fulfil the goal of affordable home ownership."

 

If you are shopping low mortgage rates - check out our Sutton Member Mortgage Program for comparison at www.SuttonRealty.com

If you have a mortgage questions, feel free to email us or contact us at our Sutton Realty Toronto Office 416-896-3333 or GTA 905-896-3333.

 

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Posted: Wednesday, February 17, 2010 5:29 PM by Sutton Realty

Comments

Toronto Real Estate Blog - GTA News said:

The Real Estate market at a Glance: The Toronto Real Estate Board reported an increase of 74% in sales

# February 19, 2010 3:08 AM
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