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New Mortgage Rules - April 2010

Mortgage Rules: Confused
There are many different articles coming out lately trying to place their twist on the new mortgage rules and regulations. We have had several realtors and clients in the past few weeks try to make sense of all the commotion. Below are some Coles Notes of what the new rules imply:

1. The rental offset changes are going to affect the investment property market the most. In the past if you owned a rental property some  lenders would allow you to take 80% of what your rental income was and apply it against what the mortgage payment and taxes. This meant that you would technically only need to qualify for 20% of what the mortgage payments plus taxes would be. Now the rules have changed and  you can only utilize 50% of the total rent and add that amount to your total income in order to qualify. This really changes the debt servicing abilities of a lot of consumers looking to purchase an investment property.

2. In order to purchase a rental or secondary property, you are now required to put down 20% of the sale price. Before the rule changes the minimum down payment allowed was 5%.The government has implemented this rule to protect investment owners from fluctuations in the housing market that could cause their investment property to have zero or negative equity.

3. Refinancing has also become more difficult. The maximum you can refinance on your own home is now up to 90% which used to be 95%.This was implemented to protect the home owner from market fluctuations and the potential to have negative equity in your own home. Lenders vary as to what amount you could pull out to refinance a rental property but most will only allow a maximum of 70-75% of the homes value.

4. And lastly, the rate qualification rule. This one has seemed to confuse even the most intelligent minds which obviously does not include some from parliament. If you wish to take a mortgage with a term less than 5 years whether it is a variable or fixed rate will have to qualify on the Bank of Canada's 5 year posted rate which is currently  in the 5% range (http://www.bankofcanada.ca/cgi-bin/famecgi_fdps). If you chose to take a 5 year term or longer your qualifying rate is the lending institutions 5 year discounted rate which is always lower than the Bank of Canada's posted rate. The government is essentially trying to push more homeowners towards taking the 5 year fixed rate or longer term.

Although these rules don't officially take place until April 19th, some of the lenders have already implemented some of the changes.

For more information please contact: Alex@LakeOkanaganRealty.com

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