Yesterday Finance Minister Jim Flaherty made the following three announcements to mortgage insurance rules effective April 19th 2010.
1. Variable mortgages will be qualified at the five year fixed rate;
Commentary: This is a rather benign change as most lenders currently use the three year rate, today being 3.50%.
In today’s rate environment, this would change the qualifying rate to 3.89%.
2. Refinancing limited to 90% instead of 95%;
Commentary:
This change means homeowners will be less able to pay off high-interest debt with low cost mortgage money. On a positive note, it preserves the equity in the home in case of another market downturn or in the situation when the homeowner sells the home and incurs Realtor fees.
3. Non owner occupied residences require 20% down payment;
Commentary:
This change effectively eliminates high-ratio mortgage financing for the purchase of rental units. Currently investors can purchase a rental unit with only 5% down, if they can stomach the 6.50% to 6.90% CMHC insurance premium. Quite frankly, this change will have a zero impact in our market as I have never seen the numbers (income/debt service expense/purchase expense) that made sense from an investment point of view. Borrowers who do wish to enter the rental investment market will continue to use equity in their own home or other rental properties for the downpayment and bypass the CMHC insurance premium.