Canadian Mortgage Rules

New Canadian Mortgage Rules

It has been several years now since the Government of Canada decided to take steps in tightening certain Canadian mortgage rules and guidelines for Chartered Banks and other lending institutions such as Trust companies and Credit Unions so that the new Canadian mortgage rules would help cool the consumers hunger and appetite for debt accumulation, especially buying real estate.

Since back in February of 2010 until now, the Canadian Government has implemented multiple rules and tightening of existing regulations and we wanted to summarize them here for your quick reference. new canadian mortgage rules

– All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

– Canadians can withdraw equity from their homes in refinancing their mortgages up to 90 per cent of the appraised home value from 95 per cent. This will help ensure home ownership is a more effective way to save.

– When purchasing real estate other than one to live in, Canadians are required to have at least a minimum down payment of 20 per cent. This measure is to reduce the risk involved in investment properties based on market speculation that property values can go up for R.O.I. Return On Investment purposes.

– The maximum amortization for insured mortgages has come down from 30 to 25 years, and many lenders have adopted this policy even for non-insured mortgages.

– Borrowers applying for an insured variable rate mortgage must be approved using the Bank of Canada 5 year bench mark interest rate. This means that the borrower can no longer be approved with the discounted variable rate that they are applying for, but must be risk tested by seeing if they can be approved if the variable interest rate was to go up to the 5 year bench mark rate, which is always higher than the discounted variable rates that the banks promote. If the debt calculation ratios work out and are within aloud parameters, than the borrower will be approved the variable mortgage and will receive the advertised discounted rate.

– Further to the above new rule, the five-year variable rate conventional mortgages or conventional mortgages with terms less than five years now require that the borrower qualify based on the greater of the Bank of Canada five-year benchmark rate or the lenders mortgage contract rate applicable to the term chosen. For terms of five years or more, the qualifying rate is the contract rate.

– As well, the underwriting process and debt calculations in approving a borrower for a mortgage has become more strenuous to insure that the borrower has the strength and credibility to be able to pay back the loan amount.

3 thoughts on “Canadian Mortgage Rules

  • January 11, 2013 at 2:55 am

    They can be very good or very bad. You can opt for a monthly check but I would never sugesgt that. You are better off taking a line of credit to use when needed. The bank pays off your current mortgage and you never make any payments back. Money is not due on the mortgage until you die, sell the home or move out for more than 12 months. Be aware you will be accumulating a monthly handling charge and that the interest rates are not very low and that the cost for initiating the mortgage will all be added into the final cost tobe payed back. You will never outlive your loan since they only give you about 80% of the value of your home. A lot of seniors take the whole sum and lose some of their benefits which are based on assets and income and others end up giving the money to children or blowing it on junk. If you are low income and need cash to pay your home taxes, home insurance, premium on long term care insurance, needed repairs to the home inclusing accesibility ones or pay for additional services to remain at home rather than in a nursing home, this type of mortgage can be very helpful. They are great for some situations but not good for all. Be sure that you go with one of the top three companies like Wells Fargo, Met Life or Financial Freedom and have family and friends be with you during all the discussions and paperwork.

    • September 7, 2013 at 11:58 pm

      Yes, rates remain sohmewat low historically speaking. No, mortgage rates have nothing to do with the Fed Funds rate.No, low interest rates are not to blame for people loosing their homes. Greed, timebomb loans and irresponsible borrowing and lending, declining markets and fraudulent appraisals were the real culprits. This is the perfect storm for a mortgage crisis.Banks make there money when they originate loans (junk fees), sell the loans to FNMA and FHLMC (gain on the sale by originating at premium rates) and through servicing income (they make 0.25% per year for processing payments and performing various other admin tasks on the loans the originate. They do not generally hold the paper as they would be exposed the the interest rate risk that caused the S L crisis 20 years ago. That is, if you originate a loan at 6% and rates go to 7%, your 6% mortgage would be worth less than the face amount as it would have to be sold to yield 7%. It may lose as much as 10% of its value. That would errode a banks capital like nothing else and could lead to its insolvency which would threaten the deposit insurance fund.What rates will do in the future is pure speculation. Some market analyst are calling for the 10 year bond yields to fall by the end of the year. If that happens, the required net yields on the mortgage back securities in the secondary market(which drives what rates banks can afford to offer in the retail/primary mortgage market) should fall as well.With that being said, my finance professor told me that we, as consumers, should not speculate about what will happen with interest rates. That is, if you need to borrow and you find a rate that you like, you should take it because it may not be there tomorrow. How true that wisdom rang this January when rates dipped to about 5.375% on a 30 year for about 6 hours before they shot back up 0.5% when the stock market started its recover.Who is really loosing money? The people who insure the loans that are going in to default; the FHA, VA and the PMI companies and some of these other companies that supposedly insured the uninsurable loans called non-prime/sub-prime loans (these companies could not possiblly have charged enough to cover the losses on the loans they insured so they are largely bankrupt) and everyone who had investments in companies that bought into these pools of sub-prime loans.Between the diminished home equity and actual losses due to defaults, I believe the that the actual losses will be around 2 trillion dollars by the time the crisis is really over.All those people who talk about Bears Stern being a watershed are clueless about the liabilities that Countrywide has failed to recoginize. I think there could be hundreds of billions that will be scuttled if the merger with Bank of America goes through. Another back room deal in the making in the name of the governments too big to fail doctrine.

  • January 13, 2013 at 5:27 am

    I never fully understood the resvree mortgage I mean like do you get thrown out after all the money has been used up? And in these poor economic times is the cost of the house judged on the lower amount that homes are selling for now, or if the agreement once was for the higher amount is it now adjusted downward? I had a friend who insisted that his father get one of those resvree mortgages. His dad had to pay some kind of fee to have it done, and then after it began the people who held the resvree mortgage rejected it and he’s now up in the air as to who he should be paying for the house and how he will get the extra money to pay back the last few payments that he got money for and spent that money my resposne to you is I think resvree mortgages stink.I don’t think a resvree mortgage has anything to do with how long you live. If you run out of money from the paydown then I guess you just go to live with your kids because you would have gotten a resvree mortgage because you were in need of money (right?) so when the money runs out from the resvree mortgage the till is dry so you have to get help elsewhere.

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