Canadians Should Brace for Financial Change

As many Canadians are now aware, the federal government has implemented changes to mortgage lending policies. These changes do not address the widely debated necessity of reduced amortizations and increased down payments, which is likely a sign of relief for many Canadians.

The changes do take a swing at interest rate qualifications, refinancing ceilings and investment properties. Because these changes were implemented at the federal level, they will affect all mortgage insurers in Canada, including the Canadian Mortgage and Housing Corporation (CMHC), Genworth Financial and AIG United Guaranty.

Effective April 19, all applicants will need to qualify for mortgage payments based on a five-year fixed rate mortgage. This payment will then be factored into the applicant's debt ratios and overall ability to pay (debt ratios themselves have remained untouched in this round of adjustments).

Current policy states that the qualifying mortgage payment is based on the greater of a three-year fixed rate mortgage or the rate of the requested term, which affects short term mortgages and those tied to the prime lending rate.

While five-year fixed rates are usually higher than their three-year counterpart, this difference is typically nominal and will likely have little affect on the majority of Canadians.

If your household budget is tight, this change could impact your ability to qualify and it would be prudent to look into this right away with a seasoned mortgage expert. The government's motivation is to ensure homeowners are able to handle higher interest rates, and payments down the road.

The change that may have the largest affect on homeowners is adjusting the refinance maximum from 95 per cent of property values down to 90 per cent.

There are a few reasons why the government is initiating this change. First, it will keep more equity secured in Canadian homes, increasing their savings and overall net worth. Second, with record low interest rates many Canadians have been refinancing their homes to pay off high-interest debt and to free up cash for investments. This cap will minimize the available cash to homeowners and could slow the number of eligible refinances in our country.

Third, although the government didn't exactly spell this out, requiring Canadians to maintain increased equity in their homes provides a greater cushion if property values were to decrease. Those with equity in their homes are less likely to fall behind on their payments when compared to those with little, or no, equity in their homes.

The third change in mortgage financing was investment properties. Currently, Canadians can purchase an investment property with as little as five per cent down, this will soon jump to a 20 per cent requirement. Keeping in mind insurance premiums are quite sizable, in relation to the premiums charged on owner-occupied properties, many investors were already looking to avoid these fees. This move may have less impact then it would initially appear.

Borrowers looking to purchase a home with a rental component to it, such as a duplex where they will live in one side and rent the other side, are still eligible for 95 per cent financing.

While the changes are in affect for April 19, many lenders will start to implement these much earlier. If you believe this will affect your upcoming real estate plans, it is advisable to contact an accredited mortgage professional immediately to take the necessary steps.

For now, down payments and amortizations remain unchanged. We will want to keep an eye on Parliament as it resumes in March to determine if opposition members believe these actions are significant enough to "help prevent negative trends from developing," as finance minister Jim Flaherty said of the changes.

The government will not hesitate to take the action it deems necessary to keep our economy moving in the right direction. Do not assume that status quo will remain indefinitely when it comes to mortgage lending policies.

CMHC FORECASTING BOOST TO NEW,
RESALE HOUSING MARKETS IN CALGARY

By Mario Toneguzzi, Calgary Herald

Canada Mortgage and Housing Corp. is forecasting increases in both the new home and resale housing markets this year and next year in Calgary and in Alberta.

In releasings its updated market forecast today, CMHC said the Calgary census metropolitan area will see total housing starts rise by 20.3 per cent this year to 7,600 units followed by a 21.1 per cent hike in 2011 to 9,200 units.

MLS sales in the Calgary area are expected to climb by 10.9 per cent to 27,400 this yearand another 3.3 per cent in 2011 to 28,500.

Average MLS sale price in the Calgary region is forecast to jump by 5.5 per cent this year to $407,000 and another 3.9 per cent next year to $423,000.

In the province, housing starts are forecast to increase by 20.7 per cent this year to 24,500 units and by 22 per cent in 2011 to 29,900.

MLS sales will rise by 10.8 per cent in Alberta to 64,000 in 2010 and by another 3.9 per cent next year to 66,500.

Average MLS sale price for the province this year will jump by 5.1 per cent to $358,000 and by 3.9 per cent the following year to $372,500.

mtoneguzzi@theherald.canwest.com

Thanks for reading and I will send you more info next month.

For all your real estate needs I am ready and willing to help you take that next, very important step.

Sincerely,

Louise Fuller

Louise@LouiseFuller.com