Canadian Mortgage Broker News - From the Press: What people are saying about the new mortgage rules

Canadian Mortgage Broker News - From the Press: What people are saying about the new mortgage rules

3 Major Changes to Mortgage Lending

A summary of the new changes introduced this morning by Finance Minister Jim Flaherty, to come into effect April 19th, 2010 are as follows:

1. Borrowers must meet the standards for a 5 year fixed rate mortgage even if they are choosing to sign onto a mortgage with a shorter term and lower rate.

2. When re-financing your home, you may only take out up to 90% of the equity instead of 95%.

3. A minimum down payment of 20% required for non-owner occupied properties.

Surprisingly to some, there were actually no changes to the minimum down payment as was previously hinted at. The current minimum down payment remains at 5%. The maximum amortization has remained at 35 years, also with no change.

Breaking News: New Changes to Mortgage Lending

Tougher mortgage rules to cut down default risks

16/02/2010 10:52:18 AM

CTV.ca News Staff
Ottawa has tightened the rules for obtaining a government-backed mortgage, as it casts an eye towards expected future interest rate increases and the risks those pose for Canadian homeowners.

Finance Minister Jim Flaherty announced Tuesday morning that prospective homeowners will soon have to meet the requirements for a five-year, fixed rate mortgage -- as opposed to the three-year standard in place right now. The rule will apply even if they choose a mortgage with a lower interest rate and shorter term.

Flaherty told reporters gathered at an Ottawa news conference that the change will "help Canadians prepare for higher interest rates in the future."

"One must always guard against the temptation to take on more financial risk simply because interest rates are low. Our government is acting to help prevent Canadian households from getting overextended and acting to help prevent some lenders from facilitating it," he said.

Flaherty also announced Ottawa will also limit the amount of mortgage refinancing that homeowners can undertake.

"We will lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes," he said.

"This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up," he added.

"We are encouraging people to build equity over time, using homeownership as an effective way to save, rather than as a vehicle for quick cash."

The finance minister also announced that housing speculators will now have to put down a 20 per cent down payment on properties they will not be living in, to qualify for a government-backed mortgage.

But he said the government is not trying to crack down on investment properties such as rental units.

"What we're getting at is the speculation in multiple-condo markets, in particular," he said, making reference to incidents in the Vancouver and Toronto markets as examples.

Preventative measures

Flaherty said the changes, which are expected to come into force on April 19, were necessary to prevent future problems and he insisted they would not make it harder for Canadians to buy houses.

"The only restriction would be qualifying at a five-year, fixed-term basis, which is a credit qualification that a number of our chartered banks have already gone to," Flaherty said.

"I think that most prudent Canadians would want to have that level of ‘credit-worthiness,' of credit qualification, so that they could rest assured that their house would remain affordable -- and the mortgage remain affordable -- when interest rates rise, as they inevitably will."

Pointing to mortgage changes the Conservative government instituted two years ago -- including a minimum five per cent down payment for new mortgages and a maximum 35-year amortization period -- Flaherty said they also helped Canadians avert the kind of housing crisis seen in the United States in the current recession.

Economists had previously called for the minister to be stricter about who can get new mortgages, but warned the government not to put on the brakes to strongly, in order to preserve the fragile economic recovery. On Tuesday, several said they favoured the new rules brought forward by the government.

"Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent," Frank Techar, president, personal and commercial banking, BMO Bank of Montreal said in a statement.

Carleton University professor Ian Lee said he supported the changes, but said he would also like to see the required mortgage housing down payment doubled from five to 10 per cent.

"In my judgment, the most important predictor of risk in home ownership is the amount of down payment," Lee told CTV News Channel from Ottawa on Tuesday morning.

Lee said he was hoping the finance minister would increase the required down payment "to really take out that additional risk that is there, which is caused by the fact that interest rates are going to go up."

"And when they go up, some of these people will not be able to keep their house, because they will not be able to afford the payments," he said.

BNN's Michael Kane said Flaherty's position is that while there may not be a housing bubble immediately on the horizon, he wants to be proactive in preventing one from forming.

"What Mr. Flaherty is saying here, is that even though he doesn't see the bubble really forming at all, to put certain measures in place so one does not get the chance to build is the prudent thing to do," Kane said Tuesday morning from Toronto.

Overall, Flaherty said the Canadian housing market is "healthy and stable," with about two-thirds of Canadians owning their own homes.

"Our housing market… has been a source of strength for our country and a source of growing wealth for hardworking Canadians themselves," Flaherty said.

With files from The Canadian Press

Speaking out against tighter lending requirements

ING president speaks out against tighter mortgage rules

| Tuesday, 9 February 2010

After providing several comments on the potential housing bubble in Canada, ING Direct Canada president Peter Aceto told the Globe and Mail that Ottawa shouldn't tighten mortgage rules.

"High level, one-stroke fixes are too simple, and can have a very large impact," Aceto told the newspaper. "I worry about government-based tightening of the mortgage rules creating a much worse reaction - too fast of a cooling, which is not really good for anyone."

Aceto went on to say that banks can tighten rules themselves and do not need Finance Minister Jim Flaherty to "make the decision for them."

The comments come alongside a warning from Scotia Capital economists Derek Holt and Karen Cordes, who predicted a housing bubble forming in a report released late last year.

"You can't go from 100 km/h to zero in a nanosecond without suffering harsh consequences," they wrote, according to the Globe. "Newton's third law is the best caution that can be served up with respect to abruptly altering Canadian mortgage rules as per some of the whisper talk leading up to the March 4 federal budget after the currently government sharply liberalized the mortgage market in early 2007."

Will 10% down payment be the new minimum requirement?

Welcome back! How time flies. Christmas 2009 has come and gone and we're already into February of the new year.

Several people have mentioned the reference to increasing the minimum 5% down payment to 10% while also discussing a decrease in amortization. The last major change with this regard was in October of 2008 when 40 year amortization alongside zero percent down payments were removed. At present time, a client may qualify for a 35 year amortization with a 5% down payment, which in this market, is a very decent sized down payment. Since the infamous "boom" in the Calgary housing market, 5% is no longer what it used to be. On a 300K house this is a 15K down payment which is a significant amount of money. Certainly many people would be forced out of the possibility of home ownership should the minimum requirement be moved up to 10%.

At present time this is strictly a rumor but I will post the link with supplemental information on this topic.

Flaherty has no plans to tighten mortgage rules: Globe and Mail

| Monday, 8 February 2010

Following a report in Saturday's Globe and Mail that banking officials have called for tighter mortgage rules to stave off a housing collapse, Finance Minister Jim Flaherty told reporters he does not see signs of a housing bubble in Canada.

According to the paper, Flaherty made the comments following the weekend's finance summit. Although he said there were some "signals in the market that are concerning," he added there is no "compelling evidence" of a housing bubble. He did, however, remind the Globe and Mail that he has policy tools available to "take action to counter negative trends."

"I have used some of them before and can use some or all of them again," Flaherty said, making reference to the government's decision to disallow zero-down mortgages and 40-year amortizations in 2008.

The discussion of tightening mortgage rules surfaced in December when Flaherty mentioned the possibility of increasing down payment and amortization periods to cool off the housing market. The Globe said the Department of Finance has canvassed the mortgage industry for ideas on whether tighter mortgage rules are needed.

CAAMP's Jim Murphy told the newspaper that it would have "serious concerns" with ten per cent down payments, while Canadian Mortgage Trends' Robert McLister said the CMHC has already "increased its vigilance" on mortgage insurance approvals.