How the New Mortgage Rules Affect House Prices

On Tuesday February 16th, 2010, Canada’s Finance Minister, Jim Flaherty, announced that the Government will be changing Canada’s mortgage regulations in effort to prevent potential mortgage borrowers from acquiring mortgages that they cannot afford. Due to the increasing concerns about consumers being attracted to low mortgage interest rates, especially borrowers who are securing variable-rate mortgages starting at very low levels, there are worries that many mortgage holders may not be able to afford the monthly mortgage payments which could result in a housing bubble. Flaherty announced that the Government will be implementing tougher restrictions regarding how banks go about approving mortgages. For people looking to purchase a new home, it is important to understand how the government mandated mortgage rules will affect home prices.

The goal of the new mortgage rules is to make sure borrowers are not taking on more debt that they can manage. Many experts believe that in the next couple of years home prices are likely to decrease thereby increasing the need for stricter mortgage regulations. Many economists note that the recent low home prices and low interest rates are eventually going to increase, but these new rules basically ensure the likelihood that the lower house prices will continue into 2011. In the coming weeks, it is expected that many people will hurry to acquire a mortgage before the rules kick in as the date the regulations come into effect is April 19th, 2010. After that, the housing boom will likely slow down as the market adjusts.

If you are in the market for a new home, this may be a good time to acquire a mortgage. It is important to remember that interest rates will eventually increase so you should create a long term financially stable mortgage repayment plan, especially if you have an adjustable interest rate. For instance, if you get an adjustable mortgage rate at 2% and in two years it rises to about 5.5%, this will cause a drastic increase in your monthly mortgage repayments. If possible, many real estate experts recommend a fixed rate mortgage with a larger down payment so that you will not be negatively impacted when rates increase.

The recent economic crisis has resulted in Government intervention in order to make sure the housing market does not crash. As the housing market stabilizes, home prices will eventually begin to rise. As well, as the economy rebounds, the current low prices being offered on many homes throughout Canada will not last. If you plan to purchase a home after April 19th 2010, it may be more difficulty to secure a mortgage as you will have to meet criteria that includes: a minimum down payment of 20 per cent will be mandatory for government-backed insurance property, the maximum you will be able to withdraw when refinancing your mortgage will be 90 per cent of the property’s value, and you will have to meet specific qualifying criteria for a five-year fixed rate mortgage.

If you have a secure job, good credit rating, and can afford the monthly mortgage repayments even when interest rates rise, this may be a good time to purchase a new home before the new mortgage rules become compulsory.

Analysts are expecting mortgage rates to rise and GIC rates to drop within the upcoming year. Read more about it on our blog.

Canada Mortgages FAQ:

Question: Why does mortgage payment history not appear on credit reports?
Curious – my Canadian mortgage does not appear on my credit report. I contacted the mortgage company, and they said they do not report, nor do most other mortgage companies in Canada. Surely, with a mortgage being the biggest thing we buy, our good payment history should be recorded? I’d imagine they would be quick to report any delinquent payments or foreclosures!

Answer: In Canada your mortgage history does not appear on your credit bureau unless it is setup as a line of credit. This shows up as a revolving credit line that is tied to the value of your property. Basically think of it as a large credit card but your house is the asset.
Your good payment history with a mortgage is shown when some lender may ask for a mortgage rating or current mortgage statement.
In most cases if your payments are going to be late on something, I’ve found that the last thing people want to be late on is their mortgages. People let credit card payments or loan payments slide or be late but most of the time unless things are in real trouble, your mortgage is usually the last thing you will be late on.

Question: How do I increase my Mortgage payments if the bank my mortgage is with is different from my regular bank?
If my regular day to day bank is though TD Canada Trust but my Mortgage is with Scotia Bank do I have to call someone to request doubling up on payment etc.

Answer: Register your account on the Scotia Bank website. The site will take you through the steps to pay your mortgage online electronically via your regular bank. If you have trouble registering your account, call the contact number listed on the website.

When online, you can make extra payments if you wish. Most banks also allow you to specify how to direct your extra payments, whether you wish to apply it to the principle of the loan or the escrow account.

Question: Can I file a quick/quit claim deed to remove my name from my parents house and can I do this from Canada?
My parents aged 55 and 60 are looking to release equity from their home using a life mortgage, so I need to be off the title, as the youngest applicant needs to be at least 55.

I am living in Canada now and my parents are in London.

Answer: The true answer here is that your parents will have to either call or visit the local municipality where the deed will be recorded and ask a very simple question, which is, what will they accept. The recorder of the deed will have the final say as to what they will accept to record the deed. With you being out of country, they may require you to actually show up at a consulate or embassy to get an official seal put on the deed. Make sure your parents tell whomever they ask specifically that you are in Canada getting a deed notarized and if the Canadian notarization will be sufficient to get the deed officially on record

Question: How to get ex to take over mortgage, she is not willing?
handed over the house, completely hers and she will not take my name off the mortgage. Can I force her to sell, can I stop paying the mortgage and let the bank take the house from her? There is a fair bit of equity in the house so the bank will get all of their money if they foreclose. And how many payments do I have to miss before they actually foreclose on the property? We are in Ontario, Canada. My lawyer was crap!

Answer: Those issues should have been settled with the divorce. My ex had to sign over a quit claim deed, but I couldn’t get his name removed from the mortgage until I refinanced. Banks don’t have to release you from the mortgage.

Question: Can I claim the mortgage interest in my tax return?
I’m in Ontario, Canada. I also want to know if I can claim the home and car insurance as an expenses. My main income is from rental properties.

Answer: It all depends, are you renting some or all of the house. If you are renting some or all you can claim part of the amount you are renting out (20%, 30%, 50% or 100%) you get the idea. If you are not renting out any portion of the house then mortgage interest on a principal residence is not a tax deduction in Canada.

As for the car if you have more than one rental unit in more than one location you could claim a part of the expenses on the car.

You may want to check out the CRA site, it should answer all your questions.

Question: If my mortgage is a variable rate, that is .9 below prime, should I look into locking into a fixed rate with?
Are rates soon to rise in Canada?

Answer: Variable rates are always a risk. Get fixed asap.

Question: Do I get a GST refund for being a first time home owner this year?
I really could do with it to be honest but I don’t know. I’m so new at all this. We live in b.c. Canada.

We bought our rented home. The mortgage is 340,000. We got it January 31 of 2010. Do we get any money back when we do our taxes? How do we find out?

Answer: Did you pay GST? GST is only is charged on new homes. If you were charged usually the builder is a registrant and he can get rebated. If you and your partner have not owned a home in the Five years prior to the purchase than next year you can claim the Home Buyers Tax Credit.

Question: Military draft In Canada?
What happens to an individual’s financial obligations (Mortgage Payments,Court Payments,Debts) if there is a military Draft in Canada? Because he/she will be called up, who will pay or take care of the financial obligations?

Answer: There has never been a military draft in Canada and it is anticipated that there never will be. We’ve never needed it before as Canadians have always answered the call of their Nation.

As far as IF there ever was one, the individual is still responsible for their personal debts. When a soldier is drafted they would be paid the wage appropriate to their rank and that is what they have to make due with. It remains an individual responsibility.

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