In order to forestall the possibility of a housing bubble and subsequent housing market crash the federal government has tightened up mortgage lending regulations. The following changes are to be effective April 19, 2010 but it is expected that most banks and lending institutions will implement the changes effective immediately. These rules apply to all government backed (CMHC) insured mortgages. The new rules are as follows.
-Borrowers are required to meet the standards for a five year fixed rate mortgage even if they actually choose a mortgage with a lower interest rate and a shorter term. For example you may wish to borrow $200,000 amortized over 20 years with a one year fixed rate mortgage at 2.65% which results in a monthly mortgage payment of $1,035. Well under the new rules you will have to prove that you have the finances to afford a $1,260 monthly mortgage payment which is what a fixed five year mortgage would cost at the current 5 year rate of 4.5%.
-The maximum amount that consumers can borrow to refinance their mortgages is being lowered to 90% of the value of their home, down from 95%.
-Investors wishing to buy investment or rental property in which they do not live will now have to have a 20% down payment instead of the current 5% required to get a government backed mortgage.
We feel that these rules make sense. If a person gets in over his head and can’t pay the mortgage he has a big problem. If many people get in over their heads and can’t pay their mortgages then we all have a big problem. Look what happened in the U.S.