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July 9 2012...Federal Governemnt introduces new rules to cool market

The Canadian Federal Government decides to take proactive measures to cool off mortgage lending.

Firstly, Finance Minister Jim Flaherty announced four changes to mortgage insurance rules in an attempt to cool what he feels is an overheating housing market. Mortgage insurance is required for all home purchases with less than 80% LTV ratio – ie: mortgage downpayment less than 20%.

·       The maximum amortization period will be reduced from 30 years to 25 years

·       The maximum amount of equity homeowners can take out of their homes in a refinancing is also being reduced to 80% from 85%.

·       The maximum gross debt service ratio used to calculate the maximum loan amount you can borrowed will be fixed at 39% and the maximum total debt service ratio at 44%.

·       Finally, the availability of insured mortgages will be limited to homes with a purchase price of less than $1 million.

The above new rules will take effect July 9th, 2012.

Secondly, the Office of the Superintendent of Financial Institutions (OSFI) also released their final draft of revised mortgage underwriting guidelines for federally regulated financial institutions which includes all major Banks and Trust companies.   The proposed changes were put out sooner than expected and cover four main areas.  

 ·       Home Equity Line of Credits (HELOC);

 ·       Qualifying Rates: Interest rates lenders used to qualify variable rate mortgages or fixed terms under five years;

 ·       Down Payments;

 ·       Income confirmation for self-employed borrowers.

Federally regulated lenders have until “no later than fiscal year-end 2012” to comply with these guidelines. That ranges from October 31, 2012 for major banks to March 31, 2013 for other institutions).


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