Canadian Government Clamps Down on Mortgage Affordability Rules

The Government of Canada has been concerned about the current level of interest rates.

The difficulty is that borrowers might qualify now for mortgages that in a few months they may not be able to afford. Both Jim Flaherty, Minister of Finance and Mark Carney, the Governor of the Bank of Canada had issued warnings of caution to prospective homebuyers and mortgagors.

Here are the three essential changes:

1) Five Year Qualification

A borrower will have to qualify for the five year mortgage rate, no matter what. If approved, then that borrower may still opt for the lower variable rate.

2) Maximum Limit

Financing was permitted up to 95%, and that will be reduced to 90%.

3) Residential Multi-Plexes

A minimum down payment of 20% for government-backed mortgage insurance on non-owner-occupied properties will be required. Currently, borrowers may purchase a residential property with a 5% down payment. This will increase to a 20% down payment for small non-owner-occupied residential rental properties.

If the homeowner resides within the complex, then the property may still qualify for a 5% down payment.

Effective Date

The new rules come into effect 19 April 2010. Until then, the current more generous rules continue to apply.

Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate, finances and the law related to real estate
www.OntarioRealEstateSource.com