This morning Jim Flaherty announced 3 regulation changes engineered to mitigate household debt levels in Canada. With mortgage delay payments up 50% & household debt identified by the IMF as the #1 risk to the Canadian economy, the following changes will take effect on March 18th, 2011:

1.   Max amortization shortened from 35 to 30 years.
2.   The max Canadians can borrow to refinance their mortgages will be lowered from 90% to 85%
3.   The government will no longer insure secured lines of credit.

Shortening the maximum amortization from 35 to 30 years has the immediate effect of eroding purchasing power by 7.5%. Under the current regulations, someone making $60,000 with no debts would qualify for $508,000.* With the new rules, that same person would only qualify for $470,000 -- a reduction of roughly $38,000.*

*assuming no property taxes, no heat costs, 3.89% 5 year fixed, no GDS & TDS of 44.

This article was contributed by Ryan Zupan, Mortgage Planner with The Mortgage Centre - City Wide.

To get pre-approved or talk about your mortgage needs contact Ryan at:

p| 604.250.6122
e|  zupan.r@mortgagecentre.com
w| www.ryanzupan.com 

As anticipated, the Bank of Canada (BoC) raised its key lending rate by 0.25 percentage points this week, marking an end to the record low interest rates Canadian benefitted from this past year.

Lenders are now expected to follow suit and raise their prime rate by 0.25 percentage points. For homeowners on variable mortgage payments this means that their payments will increase by approximately $12/monthly payment per $100,000 of mortgage.

TD was the first of the Big 5 Banks to increase their prime rate by 0.25 percentage points to 2.50%. This increase was announced on Tuesday and took effect on Wednesday June 2.

Economists from the Big 5 Banks indicated that the prime rate is expected rise further this year by approximately 1 percent to 3.25% by the end of 2010, with further increases come 2011. 

 The next scheduled date for announcing the overnight rate target is 20 July 2010.

April 19, 2010 marked day 1 of the new mortgage rules implemented by the government to 'protect' homeowners from getting overextended and 'prevent' a major housing price bubble.

Here's a summary of these changes and how they will affect home buyers and sellers:

QUALIFICATION RATE

What's changing?

Borrowers will now need to qualify for a 5-year fixed rate, regardless of what term they choose for their mortgage.

Who does it affect?

Borrowers who put down less than 20% and want a variable rate or a 1- to 4- year fixed term rate

What does this mean?

Borrowers will now have to qualify for the 5-year fixed term posted rate (6.10% at the date of this article), instead of the rate they will actually be paying if they go with a variable rate or a 1- to 4 fixed rate (can range from 2.75% -4.39% at the date of this article).

This is going to make it harder for borrowers to qualify for a variable-rate mortgage as their income will have to be roughly 25% higher in order to be approved for the same mortgage they would have take out pre- April 19.

The government has implemented these rules to help prevent borrowers from taking on mortgages they couldn't support if rates go up (which expected to happen this summer). Many lenders we've spoken to say they already use similar guidelines to calculate a borrower's debt-service ratios, so the actual effect many be negligible for many borrowers.

REFINANCING

What's changing?

You can now refinance your home up to a maximum of 90% of its value, compared to a 95% maximum previously.

Who does it affect?

Homeowners looking to refinance their homes.

What does this mean?

This will force homeowners to keep more equity in their home, which will help safeguard them in the event of housing price drops. Unfortunately this will also mean that borrowers will be less able to restructure their debt and pay off high-interest with lower-cost mortgage money.

RENTAL PROPERTY FINANCING

What's changing?

Buyers will now have to put down a minimum of 20% of the purchase price, compared to the previous 5% if they want to qualify for CMHC mortgage insurance. 

CMHC has also changed how they treat rental income when calculating a borrower's Total Debt Service Ratio (TDS):

A) For non-owner occupied rental properties:

• 100% of net rental income is added to the borrower's gross income
• The mortgage payment, property taxes, and heat are excluded from the Total Debt Service (TDS) calculations

B) For owner occupied rental properties

• 50% of gross rent is added to the borrower's income (as opposed to 80% previously)
• Property taxes and heat are excluded from the Total Debt Service (TDS) calculations

Who does it affect?

Investors purchasing residential income producing properties.

*Note: It will not apply to multi-unit owner-owner occupied homes with rental units

What does this mean?

The changes to the down payment requirement are clearly going to make it harder for investors to purchase income producing property. This is expected to push many investors out of the market and thus reduce the supply of rental units. As a result we could expect to see a shortage of rental units on the market and/or a material increase in rents.