New mortgage rules in Canada

[Meadbh]

As of today, it's going to be more difficult for marginal buyers to get a mortgage in this country.

• All borrowers must meet the standards for a five-year, fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
• The maximum Canadians can withdraw when refinancing their mortgages drops to 90 per cent of the value of their home, from 95 per cent.
• Buyers must make now a minimum 20 per cent down payment — up from five per cent — to qualify for Canada Mortgage and Housing Corp. insurance for non-owner-occupied properties purchased as an investment.

When I bought my home, my downpayment was over 50% of the purchase price. On rental properties, my deposits have been 25-35%. So had this rule been in place it wouldn't have affected me at all. I just can't imagine wanting to own a few percent of my properties, e.g. the kitchen sink.

Read more: http://www.cbc.ca/canada/british-columbia/story/2010/04/19/mortgage-rules-april-19.html#ixzz0labHKLGk

 

[ERD50]

Interesting, thanks for posting that.

I find it amazing that many people wouldn't blink at the idea of purchasing a building with 19:1 leverage, but if you mention buying stocks on margin (limited to 1:1 leverage in the US), even w/o mentioning the ratio, people act like you're some kind of crazy.

Even the old traditional 20% down (which is what I did in our early years, to avoid paying the extra insurance - PMI in the US) strikes me as pretty dangerous in hindsight. Fortunately, it worked out for me, but a few glitches and/or bad luck and I could have been in trouble. I could have been a statistic.

20% really should be an absolute minimum, IMO.

-ERD50

 

[Ed_The_Gypsy]

This will cull some overstretched owners, but it ought to put the brakes on outrageous excesses.

I hope this prevents a crash like the US. What do you think?

 

[clifp]

Interesting, thanks for posting that.

I find it amazing that many people wouldn't blink at the idea of purchasing a building with 19:1 leverage, but if you mention buying stocks on margin (limited to 1:1 leverage in the US), even w/o mentioning the ratio, people act like you're some kind of crazy.

Even the old traditional 20% down (which is what I did in our early years, to avoid paying the extra insurance - PMI in the US) strikes me as pretty dangerous in hindsight. Fortunately, it worked out for me, but a few glitches and/or bad luck and I could have been in trouble. I could have been a statistic.

20% really should be an absolute minimum, IMO.

-ERD50

It would have prevented me from getting my first house only put 10% down (and I had a negatively amortized mortgage) but I think it is in fact a good idea. I could have come up with the 20% in a few years with diligent savings. ERD is right people think buying stocks on margin at 1:1 leverage is speculative but 10%, 5%,or even 2% (FHA I believe for a while) down is perfectly fine.

 

[kumquat]

This will cull some overstretched owners, but it ought to put the brakes on outrageous excesses.

I hope this prevents a crash like the US. What do you think?

Well, the US crash was preceded by a US bubble. Prevent one, prevent the other. Unfortunately, it looks like the bubble has enlarged here but maybe not to the extent the US's did. I hope for a slow deflation of the bubble without pins being involved, or an expansion of jobs and income with flat housing prices. We can survive that.

 

[Ed_The_Gypsy]

kumquat, there has to be job expansion real soon to avoid trouble. There are a lot of unemployed Albertans trying to make their house payments on unemployment insurance (translation: "EI" in Canadistan), draining their RRSPs, too (Canadian equivalent to IRAs). This could be the double-whammy that pushes some off the chair. It was wise for the gummint to extend EI benefits, but I hope it is enough.

 

[kcowan]

The bubble has already burst in Alberta. IMHO Vancouver is next, probably in 3Q2010. Toronto might just slow down and go flat for 7 to 10 years. The speculation will stop but there are 100s of speculators at work in Vancouver already.