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The 2010 Federal Budget and the Changes to the Canadian Mortgage Market – 3 Changes to Mortgage Rules PLUS 4 Additional Changes to Mortgage Lending in Canada

As outlined by Invis Mortgage Brokers, there have been some significant changes to the Canadian mortgage market as announced by Finance Minister in the 2010 Federal Budget. These changes to the Canadian mortgage market are extremely important for homebuyers to understand, as they will directly affect whether or not you qualify, and if you do qualify for a mortgage, the interest rate terms, conditions and other factors when buying your home. The changes to the Canadian mortgage market were announced recently in the 2010 Federal Budget by our Finance Minister and it outlined a few new provisions that will affect mortgages, bank lending practises, interest rates, qualifying terms and conditions and other pertinent details associated with buying a new home in Canada. Firstly, the three major Canadian mortgage rule changes included:

1. You must qualify for 5 year rates even if you are going for a shorter term mortgage.
2. You can only refinance your home up to 90% (from 95%).
3. Non principal residences will require at least 20% down payment.

The first 2 rule changes to the Canadian mortgage rules directly affect homebuyers. All three mortgage rule changes in Canada that were announced affect real estate investors.

Before April 19, 2010
After April 19, 2010
Household Income Required
$53,800
$53,800
Able to Afford
$300,000
$220,000
Interest Rate
3.05% / 3 year Term
5.39% / 5 Year Posted Rate
Amortization
35 years
35 years
Percent Down
5%
5%
Down Payment
$15,000
$11,500
First Mortgage Amount
$285,000
$218,500
CMHC Fee
$8,977
$6,882
Total Financing Received
$293,977
$225,382
Numbers provided by TD Canada Trust Bank (March 2010)

Canadian Mortgage Market Changes (information from Invis Mortgage Brokerage)

Effective in April 2010– make sure you’re in the know about the recent changes to the Canadian mortgage market and changes to the bank lending practises that are effective come mid April 2010! Canadian home buyers and real estate investors need to keep up with some upcoming changes to Canadian mortgage rules that could affect their purchase, if they are applying for a mortgage with a down payment of less than 20% of the value of the property. The three major changes to the Canadian mortgage market as published by Invis mortgage brokerage include the following that every homebuyer should be aware of:

Qualifying for a Mortgage through the new Canadian Mortgage Market
Borrowers, homebuyers and Canadian real estate investors applying for a variable-rate mortgage or a fixed-rate mortgage with a term of less than 5 years must qualify based on the Bank of Canada’s five-year fixed posted mortgage rate. This is the biggest of all the changes to the Canadian mortgage market that will take place mid April 2010.

Affect of the New Canadian Mortgage Rules on Rental Properties
A minimum down payment of 20% will be needed for government-backed Canadian mortgage insurance on non-owner-occupied properties such as rental properties. There are also changes in how much of rental income can be used when qualifying for financing. This Canadian Mortgage market change will affect Canadian real estate investors immensely.

Self Employed? See how the new Canadian Mortgage Rules affect your mortgage application!
Make sure you contact an Invis mortgage professional about how to show proof of income to lenders, and access Canadian mortgage products tailored for your needs. The April 2010 changes to the Canadian mortgage rules will have a significant impact on self employed homebuyers and real estate investors looking for a new mortgage product.

For full details on the changes, and personalized advice on the mortgage that fits your needs, contact an Invis mortgage professional for a free, no-obligation consultation.

However, what many homebuyers do not realize is that the 2010 Federal Budget announced further changes to the Canadian mortgage market that go beyond the above 3 rule changes that will be implemented April 19th, 2010. In addition to those three major rule changes in bank financing and lending practises, the Canadian Mortgage market will also change slightly due to the announcement of the 2010 Federal Budget. Again, these changes will directly affect both home buyers and real estate investors in Canada. The 4 changes to the Canadian mortgage market as outlined in the 2010 Federal Budget include:

1. Insured Mortgage Purchase Program to continue through March 2010, but end after that.
2. Mortgage Pre-Payment Penalties disclosure by banks to homeowners and investors wanting to make better financial choices.
3. Covered Bonds utilization by banks will allow for more access to low cost funding.
4. Credit Unions will be allowed to function from the federal level (and not just at the provincial level).

Here are the four changes to the Canadian Mortgage market in more detail. Again, they were announced in the 2010 Federal Budget:

Canada Insured Mortgage Purchase Program – The federal government will continue to make purchases of qualifying insured mortgages until the end of March 2010. This program has purchased over $60 billion in mortgages, a stabilizing force in the Canadian real estate market during the economic downturn. The Canadian government indicated that participation in this program by lenders and bank financers has been waning as the economy improves.

Mortgage Pre-Payment Penalties in Canada – The federal government intends to introduce regulations with federally-regulated lenders to standardize the calculation and disclosure of Canadian mortgage pre-payment penalties to make it easier for consumers (homeowners and investors) to make financial decisions. This measure is in response to the concerns of some consumers about interest rate differential (IRD) penalties when breaking a mortgage to take advantage of lower interest rates. This was seen quite recently as most homeowners and investors were confused at the high mortgage break and pre-payment penalties as they wished to change their mortgage terms.

Covered Bonds – One of the lessons of the global financial crisis is that financial institutions need to have access to a variety of funding sources. The Canadian government will help federally regulated financial institutions and banks diversify their funding sources by introducing legislation setting out a framework for covered bonds, which in the end will help Canadian mortgage markets. Covered bonds are debt instruments that are secured by high quality assets, such as residential mortgages in Canada. The legislation will increase legal certainty for investors in these debt instruments, thereby making it easier for Canadian financial institutions to access this low-cost source of funding, giving homebuyers and investors more access to better products, lower rates and less risk.

Canadian Credit Unions – Credit Unions as announced in the 2010 Federal Budget will be allowed to incorporate and function at a national level instead of just at a provincial level. This should lead to greater competition in terms of product choice and rates, good news for mortgage consumers. This is a significant advantage gained by homebuyers and investors in the Canadian mortgage market changes reflected in the 2010 Federal Budget.

For more information regarding the 3 major Canadian mortgage rule changes that are being implemented by banks and financial institutions on April 19th, 2010, please click here.





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