Finance Minister Jim Flaherty has announced three
new mortgage rules saying the government is taking
“proactive, prudent and cautious steps” to prevent a
housing bubble. Well, there’s probably no reason for
alarm: these new mortgage rules won’t affect most
homeowners or buyers.

The gist of the new rules is that it won’t be as easy to
teeter at the top of your lending limit (more…)

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As expected Jim Flaherty announced new mortgage rules this morning. They were not the changes to amortization and down payment that everyone feared.

The changes seem to have been well thought out, changing the down payment required on rental properties, the loan to value one can refinance to, and the qualifying rate for adjustable rate mortgages.

I think Flaherty did a great job in assessing the products that needed to be eliminated from the insurer package. I have long believed that if you could not afford to put 20% down on a revenue property, you could not afford to own one. See the changes below.

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From Reuters

NEW RULES

* Borrowers must qualify for a five-year fixed-rate mortgage, even if they opt for a lower variable rate. Banks and insurers typically assess the borrower’s gross debt service ratio — the cost of financing their home relative to their income — and their total debt service, which includes total debt payments relative to income. Currently, they use either the fixed-rate, or the greater of the variable rate and the prevailing three-year fixed rate.

* Lower the maximum amount a homeowner can withdraw when refinancing a mortgage to 90 percent from 95 percent of the value of the property. The government wants to encourage home ownership as a savings tool so is limiting this type of financing, which allows borrowers to lower their equity in their home.

* Increase the required down payment to 20 percent from 5 percent for insured mortgages obtained for purchasing speculative housing investments not occupied by the owner. Borrowers buying a property they intend to live in that also includes rental units will not be subject to the 20 percent rule.

* The rules that did not change, despite some speculation they might, were the maximum 35-year amortization period and minimum down payment of 5 percent for regular home buyers who plan to live on their properties.

MORTGAGE INDUSTRY

* Innovation began in Canada’s mortgage industry in 2006, including longer amortization periods and higher loan-to-value ratios. Although the number of high-risk, or subprime, mortgages remains low relative to the United States, Ottawa intervened for the first time in 2008 to tighten mortgage insurance rules.

* Canadian law requires banks to obtain mortgage insurance on loans where home buyers make down payments of less than 20 per cent, which are considered high risk. The borrower generally pays for the mortgage premium, which is added to the mortgage payments.

* Most mortgage insurance is provided by the state housing agency, Canada Mortgage and Housing Corp, and is backed by the government. The government also backs private mortgage insurers’ obligations to lenders, subject to a deductible. (Reporting by Louise Egan, editing by Peter Galloway)

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The Canadian Competition Bureau must not have had much to do over the last three years. Today the announced that they would take the Canadian Real Estate Association to the Competition Tribunal for uncompetitive practices citing the inability for a consumer to post their property for sale on the private MLS system.

I think the Bureau has a tough fight on their hands. The fact is there is plenty of competition to the MLS, Commfree, (more…)

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A couple of years ago I attended a Rich Dad Poor Dad seminar at the Hilton Hotel in downtown Calgary. I entered the seminar with enthusiasm, and left in anger after the “instructor” (more like sales guy) berated me for questioning his methods, not taking notes, and then for taking notes on my blackberry. In particular he took shots at me for not writing down acronyms that were important, even though I already was aware of these terms as they were a part of both my everyday job and my economics background. I eventually got up and left, telling the VP of sales who sat patiently outside the door waiting for an influx of anxious buyers that (more…)

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From the Globe and Mail – Variable or Fixed? Both options have merit

My colleague from Ontario, and someone whom I truly admire, Peter Majthenyi discussed long term versus short term rates with the Globe Investor. I have done my own research as to whether fixed or floating is the best option right now, and have written a chapter on it that you can preview soon by signing up for the F Your Mortgage privileged information list. It turns out the benefits of fixed vs. floating have little to do with rising rates, and more to do with (more…)

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