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Earlier today, the Canadian federal Finance Minister Jim Flaherty announced new mortgage qualification rules for Canada.

  • Why were new rules introduced?
  • What are the new rules being introduced, vs. what they were before?
  • When will the new rules take effect?
  • Where is definitive information about the new rules available?
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1 Answer

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The new mortgage qualification rules were introduced to cool a hot Canadian housing real estate market. The rules are a pre-emptive measure intended to avoid a bubble (and later crash) in real estate. The government wants to make sure anybody buying a house can handle higher interest rates. Those rates, currently at record lows, are expected to go up later this year and into the future.

The tighter mortgage rules include:

  • Borrowers will need to qualify against a minimum standard 5-year fixed rate mortgage, even if they'll contract their mortgage at a lower or variable rate. Previously, the 3-year fixed rate mortgage was used as the minimum qualification standard.

  • The amount a homeowner can borrow in a refinanced mortgage drops to 90% of the home value, down from 95% of the home value. A home is not meant to be an ATM machine.

  • Anybody wanting to borrow to buy an investment property – i.e. a property that won't be their principal residence – will need a 20% downpayment instead of a 5% downpayment.

The new rules go into effect April 19th, 2010. However, according to the backgrounder (see below):

Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.

Definitive information about the new rules can be found at the Department of Finance of Canada. Specifically, refer to:

Some additional news media sources:

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Was there not a provision altering the maximum amortization period? I recall discussions about the "new normal" of 35 year terms, and the desire to bring that back to a maximum of 25 years. – Ether Aug 13 '10 at 18:20
As far as I know, there was no such provision in the April 2010 announcement to eliminate the 35-year amortization period. However, 40-year mortgages came to an end in October, 2008. Refer to cbc.ca/consumer/story/2008/10/15/40-year.html .. Perhaps the Department of Finance talked of doing more in April 2010, but relented? I don't know. – Chris W. Rea♦ Aug 13 '10 at 22:34
What is a principal residence? If one buys a second home and divides his time between the 2 homes, which is the principal residence here? – Kaushik Jun 11 '11 at 5:21
@Kaushik If you own two homes and "ordinarily inhabit" each, then you can, for tax purposes, choose to designate only one of the two as your principal residence. – Chris W. Rea♦ Jun 11 '11 at 12:43
Thanks Chris. But on the new one, do I put 20% down...if the question of which one is principal residence is unclear.... – Kaushik Jun 11 '11 at 12:45
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