New mortgage rules mean that borrowers will be offered additional protection against abusive lenders and reckless lending practices. But all borrowers may not welcome these new rules, as some of the regulations may affect the types of mortgages that they can get, and the requirements needed to qualify.
The most important change is that lenders will be required to ensure that borrowers are actually capable of paying the mortgages back. So long as the lenders follow the new rules they will be protected from lawsuits brought against them by borrowers.
The new regulations will not affect the majority of Canadians trying to buy a home; however, borrowers seeking larger mortgages may face additional hoops to jump through. Additionally, self-employed persons will need to provide further information before they will qualify.
Here are some of the most important takeaways about the new lending rules:
- Background – Between 2008 and 2012, four rounds of changes were made to tighten eligibility rules for new insurable loans. Among them: the minimum down payment was increased five per cent, the maximum amortization period was reduced to 25 years from 30, and the maximum insurable house price was limited to below $1 million.
- Who’s affected – Given Toronto and Vancouver are thought to be the targets of the new rules, first-time buyers in those cities — and perhaps their parents — will feel the pinch since they’ll be required to cough up bigger down payments to get into the market. Those selling their homes in order to size up, especially in cities with hot housing markets, likely won’t feel the pain since they’ve built up equity in those properties.
- Increased Down Payments –For someone purchasing a $700,000 home — a common list price in Toronto and Vancouver — the minimum down payment required will rise by $10,000 to $45,000.
- Limited Price Impact –The influence over prices should be small given the narrow reach of the new rules, analysts say. In Toronto and Vancouver, where prices have climbed to historic highs, anyone who can’t make the bigger down payment will simply be elbowed out of the way by those who can, meaning there should be a minimal impact on prices.
- Boost in Sales –The fact that the changes take effect in February could result in stronger-than-usual activity in the weeks to come, with Toronto’s mild weather possibly contributing to a spree, as home-seekers try to get into the market before the new rules are put into place.