Mortgage Rules Change- Uh Oh!

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Yesterday, Jim Flaherty announced some tighter rules before getting a mortgage in hopes deterring the inflation of Canada's potential housing bubble.

Beginning April 19, 2010, all new borrowers from the banks (e.g. moi and other first time home buyers) will have to conform into a standard 5 year fixed term even if they plan to use the shorter terms and variable-rate mortgage.

It means that you have to be able to afford the standard 5 year fixed term (right now about 5.25% posted).. it doesn't mean that you have to use it.

The other rules that Ottawa implemented were:

  • The government will limit the maximum amount you can withdraw to 90% from 95% when you refinance your mortgage
  • People who are buying property for investing purposes (e.g. not a principal residence) will have to raise their downpayment from 5% to 20%

There was speculation that they would eliminate the 35 year mortgage (so people can spread their payments out further and pay less per month, but more interest) or increase the minimum downpayment amount from 5% to 10%.

Related: Porting My Mortgage

So far, Ottawa hasn't implemented the elimination of the 35 year  mortgage or increased the minimum downpayment to 10%.  But it can't be ruled out.

What does this mean in the short term?

What might this mean in the short term? First off, the rates offered by the banks might be a bit zany until April as everyone starts scrambling to get a pre-approval or buy their first home before April.  Home sales will be a bit zany until then too (e.g. rising up higher and higher!)

Also, the HST (Harmonized Sales Tax which adds another 7% in B.C. to the GST making it a total of 12% that you have to pay) on new homes is coming into effect July 1, 2010.  People will likely be buying buying buying new condos before the July kick off, and possibly inflating new home prices.

Weird timing, because mr. youngandthrifty and I have been looking for a pre-approved mortgage recently!  We haven't gotten anything pre-approved yet, but were shopping around and looking for the best deal.  Now the banks may have the upper hand!

I went to see a mortgage broker who was willing to offer us this huge mortgage if we wanted it, but I certainly don't feel comfortable giving away 44% of my income for housing.  That's almost HALF of my salary!  Ri-donkulous I say.  She also said that many people often refinance their mortgages after their term is up, and re-do another 25 years (let's say you paid off your 5 years.  You're free to negotiate another 5 year term for a 20 year mortgage but often people pick another 25 years so that there monthly costs keep low).  The problem with that is that you're throwing away all that money in interest AND not really putting money towards owning your home.  Money that goes “POOF” and is never to be seen again. Budgets are Sexy did a post recently about calculating the daily cost of interest your debt, and his was $60 a day.  $60 a day!! Never to be seen again.  Doing that calculation is a real motivator to make you want to kick your debt in the arse…. and think twice about getting a huge mortgage/putting down a small downpayment/ extending the amortization for 35 years.

What do you think of these changes?  Good or Bad?

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Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.


  1. The Rat on February 18, 2010 at 8:10 pm

    I agree – a lot of us PF bloggers have really grabbed on to this news this week.

    I think the new stipulation for investors buying investment properties (non principal residences) will cause many to ratchet up their objectives before the April deadline. Coming up with 20% is a large increase, especially if potential investors have their eyes on more than one property!

    Nice thread

  2. young on February 18, 2010 at 11:42 pm

    @The Rat, yeah I agree! It’s a huge difference 5% to 20%! On a typical $350,000 condo here in Vancouver, that’s like a difference of $70,000- $17,500=$52,500!

  3. The Rat on February 19, 2010 at 7:52 am

    Yeah – that’s a chunk of change. If you have to get a business loan to get that down payment amount or have to fork up the cash yourself, it could mean the difference of not getting the property.
    .-= The Rat

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