New federal mortgage rules start today

After Finance Minister Jim Flaherty announced three new mortgage rule changes in mid-February, the anticipation has been building to see what these changes will mean and today the industry will find out.

The broadest change is the requirement that borrowers must qualify using the posted five-year fixed rate, which now sits at 5.85 per cent, even if they are looking for a shorter term or for a variable-rate product. As Canadian Mortgage Trends reported, this could mean a borrower’s income will need to be roughly 25 per cent higher today than it did yesterday to qualify for a one to four year variable-rate mortgage.

The other rules changes include a reduction in the loan-to-value on insured refinances from 95 per cent to 90 per cent, and a requirement that people buying rental properties must put down 20 per cent for an insured mortgage instead of five per cent.

“We’re all affected by the new mortgage insurance rule criteria – it’s tightening the aperture and focusing on bringing better quality business to the banks,” Dave Terletski, director of risk management at Bridgewater Bank, told CMP last month. “We still maintain there is a strong marketplace with relatively low delinquencies, and it’s healthy to be doing things like this that focus on quality.”

The changes apply to all insured mortgages, not just loans insured by the CMHC, and are expected to contribute to a slowing down of the housing market across Canada.