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Government of Canada Changes Mortgage Rules


The Federal government announced today that it will be clamping down on risky borrowing practices by implementing a new set of mortgage rules.

The new rules, set to take effect on April 19, 2010, aren't going to be as intrusive as many experts previously predicted, but they will work to prevent Canadians from overextending themselves.

“This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up. We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than as a vehicle for quick cash,” Minister of Finance, Jim Flaherty, said in a news conference announcing the changes.

Essentially, there will be three major changes to how Canadians borrow money:

  • All borrowers will be required to meet the standards for a five-year, fixed rate mortgage even if they choose a mortgage with a lower interest rate and a lower term;
  • Homeowners who opt to refinance their home will only be able to withdraw 90% of the value of their home, down from 95%;
  • Investors who require mortgage default insurance (CMHC or Genworth) to purchase non-owner-occupied properties, will now require a minimum down payment of 20%.

While Flaherty stands by the belief that a housing collapse is not yet imminent in Canada, he does admit that the country's hot housing markets needed to be treated proactively. With these new rules in place, he believes Canadians will be better prepared for an influx in interest rates, able to foster equity growth in their homes, and opt to stay away from "reckless real estate speculation that has been known to drive housing prices to unsustainable levels".

"Our government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Flaherty in a press release. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

Although the changes won't be enforced until April, homeowners can expect many banks and lenders to adopt them immediately.

MyAxiom.ca

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At Greenwood Estates and Mortgage Company, Mission, BC, we represent dozens of lenders and loan programs across Canada. With our experience in banking and finance we can help you find the best rates for your needs. Many years working in the banking and finance industry has given us a great network of contacts that we can use to find the best product for you. Mortgages, business loans, refinancing, credit lines and debt consolidation are our business.

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