February 17, 2010

Canada's Mortgage Rule Change

Hey people,
It looks like the Canadian government is doing something about the potential risk of a housing bubble. On Tuesday, Finance Minister Jim Flaherty, announced three changes to the mortgage rules.
1. All new borrowers will need to qualify for a five-year fixed rate mortgage, even if they intend to get variable-rate mortgages. The idea is if you qualify for a fixed rate mortgage then you can afford interest rate increases that is bound to happen soon.
2. The maximum limit that can be refinanced is 90% of the value of the home which is reduced from the current 95%. By reducing the maximum equity that can be taken out of the home when refinancing, it reduces the chance of higher loan payments.
3. All non-owner-occupied properties will require a minimum down payment of 20% in order to get a government-backed mortgage insurance. The idea here is to prevent speculation, which drives up the housing prices, which in turn makes housing less affordable for the rest of us.
These changes will go into effect on April 19th. I think it's a step in the right direction. Let's see what happens....

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