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: