The new changes to the mortgage insurance rules came into effect on April 19,2010. The new rules are meant to cut down on speculation and encourage Canadians to use their homes as a savings tool rather than as collateral for home equity loans to pay down credit card debt.

There are three basic rule changes

1) The minimum down payment for a non owner lived in home is now 20% rather than 5% and the way future rental income may be considered has been scaled back as well. This rule change will have the most impact of all the rule changes but only to Real Estate speculators. It requires speculators to put more money down up front and being able to use less potential rental income for qualifying purposes will take many new speculators out of the market.

2) All borrowers with less than 20% down will have to meet meet qualification standards for a five year posted fix rate mortgage. This is in effect even if you want a different type of mortgage or a shorter term mortgage.

Current standards  for mortgage qualifying are typically based on the lenders three year fixed rate. this qualifying standard in the past been sufficient to protect consumers fr4om rates increasing over the term . Essentially , the government is forcing people to prepare for the likely rate hike over the next five years.

Mortgages with terms of fic=ve years or more will use the contract intersest rate. This is key because it suggests lenders will still be able to qualify insured five year fixed rate borrowers using hevavily discounted contract rates (IE 3.79% instead of 5.39% as of today.) the important thing to remember is that this rule changes only apply to mortgages over 80% loan to value. So if your putting 20% down it basically will not affect you.

3) The maximum Canadians can withdraw when refinancing their mortgages will be reduced from 95% to 90% of the value of their homes. This will affect borrowers who would like to reduce some of their high interest loans and consolidate them and use th eequity from their homes to pay them off.

This entry was posted on Friday, May 14th, 2010 at 8:56 pm and is filed under Keith Macdonald's Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.