The Minister of Finance Jim Flaherty, on February 16th, announced new mortgage rules designed to ensure buyers can manage their debt of rising rates of interest, and to slow the speculation in real estate property.

Minister Flaherty commented on the mortgage issue:

“There is no clear evidence of a housing bubble, but we are taking proactive, prudent and cautious steps today to help prevent one. Our government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it.”

The new rules will come into force, on 19 April 2010; here is a brief overview changes apply to the government-backed insured mortgages:

  1. Borrowers should now be available at a fixed rate of five years even if they choose a mortgage loan with a lower interest rate and the short term. Rationale for the Government for this change is that it will help borrowers to prepare for a higher rate even if it can tighten home buyers purchasing power.  It remains unclear if borrowers must benefit rate posted five years or reduced the rate of five years.
  2. The maximum amount that Canadians can withdraw in their mortgage loans refinancing will be reduced to 90 per cent of the value of their homes instead of 95 per cent. Justification of the Government for this change is that it will help to ensure that accession to the property is a more efficient way to register.  The impact of this change is expected to be minimal as owners relatively little withdraw equity their houses to this extent.
  3. A minimum down payment deposit of 20 per cent will be required for Government backed mortgage insurance on properties that are non-owner occupied “purchased for speculation,” which means rental realistic.   While this measure is intended to hinder the speculative purchase of properties by reducing the buyers leverage effect, it will have an impact also on those buying real estate in general investment purposes.

Don’t forget to talk to your mortgage professional for the advice on the mortgage strategy that meets your needs and how these changes might affect you.