New Mortgage Rules in Canada have been implemented by the finance minister Jim Flaherty to begin on April 19th, 2010. The new rules are as follows:
1. 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 (eg. if you qualified for a 3 year variable, you may not qualify for a 5 year fixed);
2. The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one’s home;
3. Non-owner occupied properties will require a minimum down payment of 20%. This has a direct affect on those purchasing for investments and my phone has begun ringing as investors look to get into the market again before April 19th.
but there is a further change taking place with CMHC, regarding their rental offset calculation. This is a biggy if you want to buy rental properties and are trying to qualify with the rental income from a legal suite. CMHC is changing how rental income is used in a borrower’s debt service calculations (TDS formula)
Effective April 19th, 2010, CMHC will be changing the way they calculate rental income, no longer allowing for rental offsets. The new policy will involve a percentage of rental income to be added to the client’s (purchaser/buyers) gross income. The ratios and numbers are not yet solidified but when I have them I will post them.
It’s going to be more difficult to qualify for Buyer’s that are in need of rental income to keep the ratios in line.
I encourage you to make a decision very soon if you are thinking of buying as an investor or someone who needs to purchase with a suite.
You can still qualify under the current structure, but here are the changes that are coming:
– Down payment allowed from own resources, borrowed funds, or gifted from a family member. April 19th borrowed funds and gifted funds will likely disappear.
-80% rental offset allowed on all rental properties or legal suites that the client owns. April 19th offset discontinued. and now add percentage to income which will lessen the amount you will qualify for.
-CMHC will not insure a mortgage where 1 client owns more than 4 units in any one building. April 19 investor clients must have 20% down.
These are very tight restrictions and the water cooler thinking is they are doing this to shelter against possible interest rate increases. Stay tuned…