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Of the significant residential mortgage changes made over the years that has made residential home ownership through default insured mortgages, only three of the ten changes have "gone back to the future", lately.
You may want to read "what did not change". If you currently may qualify with these recent changes, will you still quality if the Minister starts looking more in the past?
On February 17, the Canadian Minister of Finance announced new rules regarding residential mortgage default insurance, which will take effect April 19, 2010 (but many lenders are early adopters of tougher insurance rules):
- Consumers will have to qualify to an income test based on the five year fixed rate, regardless of the rate taken if the term does not provide a guarantee of the rate and payment for five years;
- Investment properties will need a minimum 20% down payment instead of 5% down; and,
- Refinancing may only be done up to 90% of the home value, not the current 95%.
What did not change(yet)?
- Maximum amortisations for default insured residential remains at 35 years instead of the 25 year amortisation that was the maximum three years ago.
- Minimum down payments remains at 5% instead of 10% down payment that was required until 1991.
- Minimum down payments may be from borrowed funds or "cash back-free down" programs (depending on credit history) instead of absolutely requiriing saved or family gifted down payments of three years ago.
- Maximum percentage of income to housing costs may still be as high as 44% (depending on credit history); but, generally accepted is 35% instead of the 32% that was the maximum up three years ago;
- Maximum percentage of income to housing costs and other debt may still be as high as 44% (depending on credit history); but, generally accepted 42% instead of 40% that was the maximum up to three years ago
- Self-employed individuals have some flexibility in "stating income" to qualify instead of the historcal "only tax reported " income of seven years ago.
- Default insurance for Bank and Trust Company lenders is not absolutely required when the mortgage is 80% of property value instead of 75% as it was three years ago.
Are you at risk of being cut out of the housing markets if rules revert "back to the future?"
Ask Phil.
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