profile on real estate

Profile on Real Estate will offer insights into the world of real estate with a focus on Toronto, particularly East Toronto including Leslieville, East York, Riverdale, the Pocket, Danforth Village the Beach and more. This blog is for those who want to understand how real estate really works and whats happening with the local real estate market all from an insiders point of view...

Thursday, February 18, 2010

Changes to Insured Mortgage Rules Announced

Thanks to Mary McCreath of from Mortgage Intelligence for sharing the following insights into the recent announcement by the Ministry of Finance with respect to the changes to the rules for insured mortgages. (i.e those mortgages with less than 20% downpayment.


Further to yesterday’s announcement on government backed mortgages (CMHC insured), we thought you would appreciate clarification on the changes to come on April 19, 2010.

1. Qualifying at a 5 year fixed rate.
Currently when someone takes a short term mortgage or variable rate mortgage we qualify them at a 3 year rate. With the change, we now need to qualify them at the 5 year rate. The difference in these rates (as at feb 17, 2010) is approximately 20 basis points...from 3.59 (3 year) to 3.79 (5 year). This change shouldn’t affect a buyers purchasing power in any substantial way, but will offer you a modest buffer against the cost of higher rates down the road.

2. Limitation of refinancing to 90% of the value of the home rather than 95%.
You can borrow against the equity you have in your property when you refinance, the amount you can borrow when you do that is now limited to 90% of the value of the property. This does not affect purchases as the change impacts existing home owners.

3. Discouragement of Speculation by requiring a minimum down payment of 20%.
On non-owner occupied properties only, borrowers will require 20% down rather than the 5% it has been. This change will affect clients who are buying multiple condos and homes for “flipping” if they don’t have 20 % down. It will have no impact on those who are looking to purchase a house or condo to live in.

Exceptions on these changes will be made after April 19 where they are needed to satisfy a binding purchase and sale financing or refinance that has been entered into prior to April 19, 2010. Guidelines are still to be set which will be outlined over the next month or so. Note that banks and financial institutions may opt to implement these changes in advance of the prescribed government deadline.

Your Realtor and Mortgage Broker should work to ensure you understand the implications of the choices you are making and that the options match your personal circumstances today and into the future. Be sure to identify a professional who will take the time to get to know you and your personal needs and will then help you understand the options and implications before you make decisions. If you still have questions about how these changes effect you please post a comment and we'll gladly respond.

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