New Mortgage Rules

I get this question a lot at open houses. What’s the deal with the new mortgage rules?

Here are the three new changes that were implemented on April 19, 2010.

1. When applying for a mortgage or Home Equity Line of Credit (HELOC), the borrower will have to qualify based on the 5-year posted fixed-rate or The Bank of Canada’s benchmark rate, which ever is greater at the time. Even if the borrower is applying for a variable mortgage at a shorter term.

The change is quite significant. For example, a family with $80,000 income with no debts applying for a 4-year fixed rate mortgage would be able to borrow $525,505 under the old rules. Now they would only qualify for $425,505. That’s a $100,000 difference!

2. When refinancing an owner occupied property, the maximum loan-to-value ratio has decreased from 95% to 90%. This means that you can only refinance and take out 90% of the value of your home.

3. For investment (non-owner occupied) properties, the maximum loan-to-value ratio is now 80%. This means the investor will have to put 20% down or refinance up to 80% of the value of the property. Any non-owner occupied properties also need to be insured by Canada Mortgage & Housing Corporation (CMHC). But a lot of financial institution will only finance up to 75% and only 50% of the rental income can be used as income.

If you are buying investment properties, it is a good idea to refinance your home or get a Home Equity Line of Credit now before the interest rate goes up. The difference between refinancing and HELOC is that once you refinance, you need to pay for the mortgage payment every month. If you apply for a HELOC, the available funds are there and you only make payments if you pull out the money. You pay for it only when you use it. This is how I buy my foreclosures in the U.S.

Every person’s financial situation is different. It is a good idea to sit down with a mortgage specialist or two to find out what’s the best financial product for you. If you need referral to qualified mortgage specialists, please feel free to contact me. Our in-house mortgage specialists allow new immigrants or self-employed clients to borrow up to 75% with no or little income confirmation.