Changes designed to help keep borrowers responsible and prevent instability

Today, the federal government announced changes to the rules for government-backed insured mortgages.  That includes all mortgages where the home buyer is putting a down payment of  less than 20 percent.

Here are the changes:

  • All borrowers will be required to meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter terms
  • Reduced maximum amount that can be withdrawn in refinancing a government-backed insured mortgage to 90 per cent from 95 per cent of the value of the home
  • Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. Borrowers purchasing owner-occupied residential properties will still be able to access government-backed mortgage insurance with a 5 per cent down payment

These changes will come into effect on April 19, 2010 although exceptions would be allowed after this date in order to satisfy binding agreements of purchase and sale, financing or refinancing entered into before April 19, 2010.

These changes are part of the government’s pro-active strategy to help prevent instability in the market place and to ensure that Canadians borrow responsibly.  These changes are meant to enhance existing minimum standards established in October of 2008 which include:

  • Fixing the maximum amortization period for new government-backed mortgages to 35 years
  • Requiring a minimum down payment of five per cent for new government-backed mortgages
  • Establishing a consistent minimum credit score requirement
  • Requiring the lender to make a reasonable effort to verify that the borrower can afford the loan payment
  • Introducing new loan documentation standards to ensure that there is evidence of reasonableness of property value and of the borrower’s sources and level of income

Additional details are available through the Department of Finance Canada website.

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Filed under: Mortgage & Financing

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