Federal Finance Minister Jim Flaherty announced three new rule changes connected to government-backed insured mortgages. These changes have been anticipated and many lenders had already put them into practice. They become mandatory on April 19th, 2010.
The first relates to higher qualification rates. Since interest rates are at an all time low, there’s been some concern over the past year that people are qualifying for more than they should. In response, a new part of the requirement process will ensure that all borrowers are qualified at a five year fixed mortgage rate even if they choose to take a lower interest product like a variable rate mortgage or select a shorter term.
The second change is associated with lowered refinancing loan to value. Maximum loan to value on refinancing owner-occupied homes has been set at 95% for lower risk borrowers. This is changing to 90%, so that home owners retain a minimum 10% equity in their homes, which is of particular value if they decide to increase their mortgage to consolidate debt or cover other living expenses.
The final change is linked to a higher down payment requirement for Investment/Rental Properties. A minimum 20% down payment has been introduced for government-backed mortgage insurance on non-owner occupied properties purchased for investment or rental purposes.
To avoid paying a default insurance premium, 25% down payment is required on these non owner occupied purchases.
The government is taking a proactive approach to prevent a housing bubble. These changes are positive and home purchasing still remains affordable for first time home buyers with the minimum down payment requirement still at 5%.
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