The rules of the game for mortgages changed in February 2010. Canadian Finance Minister Jim Flaherty announced the entry into force of three new rules to discourage speculation and indebtedness.
1 – Applicants for mortgage financing will now have to meet the requirements for a five-year fixed rate mortgage.
From now on, regardless of the term or the type of rate chosen by the borrower, the financial institution must use the mortgage payment with the closed five-year rate to calculate the debt ratio and the ability to pay. Once the process is complete, the borrower will make the payment equivalent to the term and type of rate chosen.
This is good news for the borrower and the lender since both ensure the ability to pay, in the event of a rise in mortgage rates.
Example: Mortgage of $200,000 5-year closed mortgage rate 5.85% versus 3-year closed rate 4.35%.
- Payment on 5-year rate = $1,261.84/month
- Payment on 3-year rate = $1090.33/month
- The institution will use the payment of $1261.84/month to make its calculations.
You will make the payment corresponding to your choice. In this case, it will be $1090.33/month.
2 – Owners who wish to re-mortgage their house to finance renovations can do so up to 90% of its value and no longer 95%.
Yes, owners will have less money available to them. On the other hand, CMHC (Canada Housing and Housing Corporation) payments and fees will be lower. So it will be easier to stick to the budget!
3 – Buyers of a residence intended for a rental will have to pay a minimum down payment of 20% of the purchase price instead of the current 5%.
Future owners will need to have amassed more savings to complete a transaction. CMHC payments and fees will be lower and therefore will make the income property much more profitable. And technically, less risky!
COUNTER MORTGAGE RATE HIKES
Banks undertook in April 2010 to raise their mortgage rates.
People who wish to acquire a new property should take a few precautions.
1- Go to their financial institution and get pre-approved for X amount of mortgage. In addition to allowing them an advantage in terms of the mortgage rate, it will facilitate negotiations when buying the building.
2- The advantage in terms of the mortgage rate is that it is possible to request a rate freeze. In general, institutions offer a three-month freeze. But this can vary, more or less, depending on the institution and the promotion in progress.
Landlords who are on renewal can freeze a rate two months in advance, usually.
FOR COMMERCIAL MORTGAGE
Real estate investors who have acquired commercial properties can request a rate freeze for a period of 60 days.
By taking advantage of its measures, owners or future owners can take the time to make the right choice according to their needs and their budget, with complete peace of mind.