New rules for Canada’s real estate market- Changes and their Effects
by Guneet S - March 18, 2010
Canada, 18th March: Canada’s Federal finance minister Jim Flaherty has made announcement regarding new rules for homebuyers in Canada that will come into effect from April 19, 2010 onwards.
The aim of these mortgage rules is to save the homebuyers from getting trapped in a financial crisis especially when there is a hike in the mortgage rates and to weed out the speculative element from the real estate market of Canada. The rules are an effort to cut or eliminate the risk of housing bubble faced by the US at the present times.
The New Canadian Mortgage Rules-------
• Ottawa has reinforced the rule of a minimum 5 percent down payment for mortgages insured by CMHC (Canada Mortgage and Housing Corporation).
• As compared to earlier amortization period of 40 years, the highest amortization period has been reduced to 35 years.
• Revised Canada mortgage rules require significantly higher credit scores and relatively tougher loan documentation for prospective borrowers.
Effects of new Canadian Mortgage rules----- (As per economists and mortgage experts)--
• As per the new rules, requirement of a minimum of 5 percent down payment is being considered to bring the most dampening effect on sales in the real estate market of Canada.
• However, reducing the amortization period by a five-year span will not have much effect on the Canadian housing market.
• The changes will result in increasing costs of home buyers in Canada and will discourage potential buyers with low income as well as poor credit spectrum, says Douglas Porter, an economist with BMO Nesbitt Burns. This will increase the already poor home sales in the Canadian housing market. But, on the whole, it will help first-time home buyers to see that they can afford their home not just now but even when the interest rates increase in the future.
• The changes will not only affect first-time home buyers in Canada, but almost anyone who seeks a variable mortgage rate because now, he will have to qualify at a high interest rate. Those who won’t qualify will have to take a fixed rate of interest.
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