NEW Mortgage Guidelines

Here is some interesting news. Though this should have come much earlier, good news is welcome anytime. Looking at what Banks did to the consumers in the USA, the Canadian government has now taken steps that should avoid US type mayhem here. From Oct 15, 2008, there won’t be any more mortgage loans with 40 yr amortizations, only 35 year amortization periods or less, for all government backed mortgages. Reason: this type of amortized loan, makes only the Banks richer, leaving little room for one’s equity growth (principal).

Government is also abolishing zero down payment loans. Buyers will have to come up with at least five percent down payment for all new government-backed mortgages. With smaller year over year price gains and the cooling of the housing markets, zero down loans posed a risk.

There also will be no more “interest only” loans. Interest only loans are all time favourites of the real estate investors. Interest only loans may work well in the rising markets, and not when the price rise slows down or plateaus. The government has also decided to establish new credit score requirements and loan documentation standards.

According to the International Monetary Fund, the increase in house prices in Canada is based on sound economic factors such as low interest rates, rising incomes and a growing population. A recent Statistics Canada report concluded that home ownership is at record levels, with over two-thirds of Canadians owning their own home. Careful steps as the above should boost consumer confidence and keep the real estate market’s health in a good shape.

Read Toronto Star article about Mortgage rules change