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Posts tagged ‘restrictions’

New Canadian Mortgage Qualification Rules Announced Today

Flaherty Puts The Squeeze On Mortgages

Following a couple months of speculation, Finance Minister Jim Flaherty brought in some new regulations designed to tighten up lending practices and cool off the housing market in Canada. The government didn’t go so far as to reduce maximum amortization from 35 to 30 years, or increase minimum down payment requirements higher than 5%, but did take the following three actions:

  • Borrowers must now qualify for a five-year fixed rate, even if they are applying for a variable rate mortgage. Variable rate mortgages are based on the prime rate, which is at a rock-bottom 2.25% currently, and is expected to rise over the next 12-18 months. By qualifying buyers at the higher 5-year fixed rate, it is hoped that a cushion will be created such that borrowers can still afford the payments when the prime rate increases, as it will inevitably do.
  • Home owners who want to take out some equity from their homes when they refinance their mortgage will no longer be able to take out up to 95% of the lending value of their homes, only up to 90%. This is designed to prevent home owners from using their homes as an ATM and getting in over their heads if their property value declines. Probably not a bad idea, but it will prevent some home owners from paying off high-interest debt with low-interest mortgage funds. Overall, I’m happy about this one.
  • Purchasers of non-owner-occupied real estate, ie, investment properties, will now need 20% down instead of 5%. The government says this is to prevent speculation by investors. I’m of two minds on this move. It will certainly put a squeeze on buyers of investment properties, which may in turn lead to fewer rental properties available and hence a corresponding rise in rents.

The reader needs to bear in mind that the above rules are for CMHC-insured mortgages only. Private insurers like Genworth and AIG Guaranty may be more flexible. Mortgage insurance is mandated on all mortgage loans in excess of 80% loan to value ratio, which offers the lender protection should the borrower default. This way, lenders are able to offer borrowers lower rates because they do not have to compensate for the additional risk of a high-ratio mortgage.

Also, most lenders qualify a buyer on a 3- or 4-year fixed rate already when applying for a variable rate mortgage, so this won’t be a huge change for most institutions.

The new rules are set to come into force April 19th. I would expect a surge in activities in the market as buyers and investors try to get in under the deadline, even though most residential, owner-occupier borrowers won’t be too affected by the changes. All they will hear is “harder to get a mortgage” and they’ll rush out to get pre-qualified and then go shopping.

Tim Ayres – Sooke Real Estate Professional

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Is Sunriver Estates in Sooke a Strata?

Sunriver Estates in Sooke has many different home designs, including this Riverstone plan.

This is a question I get all the time from people who are interested in buying a home in Sooke’s popular Sunriver Estates subdivision.

The answer is no, Sunriver is not a strata. There are no councils, meetings, minutes, or strata fees. Each detached home in the development is a fee simple title, which is the same as most other detached homes in British Columbia. However, there is a townhouse complex at Sunriver, which is a strata with the usual implications thereof.

What Sunriver is, is a planned community, meaning that you can’t simply purchase a lot and build whatever home you please on it. The developer at Sunriver has the exclusive rights to sell the lots, and will only do so with the purchase of a building contract to go with it. There are a number of different home designs to choose from, both single level and two-storey, and almost all the homes can have a basement built under them for an extra level.

 While Sunriver Estates in Sooke is not a strata, people often ask me about the “rules” for the community. A common rumour is that you’re not allowed to have a boat or RV in your driveway at Sunriver. This isn’t exactly accurate. All homes at Sunriver have a building scheme registered on title. A building scheme is a set of restrictions that a developer will register on the title to the lots to ensure a community that is uniform in appearance and neat and tidy. For example, it’s common for a developer that is selling only building lots to stipulate a minimum size for the homes or that mobile homes are not allowed.

Sunriver’s building scheme has a few stipulations about boats and RVs at Sunriver. Basically, they want them out of sight. Keep them in the back yard or screened behind a fence or lattice and you’ll have no problems. That being said, there is always the question of who enforces a building scheme, how they would do that, what the penalty would be for violation, and under what conditions would they enforce it, i.e., would it take a complaint from a neighbour?

Take a drive around Sunriver – you’ll see plenty of examples of boats and RVs in various states of compliance or non-compliance with the building scheme.

If you have any questions about Sunriver Estates, please take a moment to email me at Tim@TimAyres.ca, call me at 250-885-0512, or fill in my contact form – I’m always happy to help.

Tim Ayres – Sooke Real Estate Professional

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CMHC Says No More 40-Year Mortgages In Canada

Tightening of restrictions also eliminates zero-down-payment mortgages.CMHC

Yesterday, the Canada Mortgage and Housing Corporation (CMHC) announced that it was pulling the plug on 40-year amortization periods for mortgages, stating that it will no longer provide its government-backed insurance for these products. Consumers will also have to come up with minimum 5 per cent down payment when making a purchase, too.

My take? Other than the 5% down payment requirement, this doesn’t really change much. You can still get a 35-year amortization on your new mortgage. The change in monthly payment between 35 and 40 years is negligible. On a $300,000 mortgage at 5.5%, this amounts to a $64/mo difference.

Also, the CMHC isn’t the only source for mortgage default insurance. The two major private insurers, Genworth and AIG haven’t yet stated what they will do in response to this announcement. It’s interesting that the CMHC was the first to introduce the 40-year amortization and zero-down; the private entitites following suit, and now they’ve reversed their earlier decision.

Overall, I think this is a step in the right direction, though. Canada’s lending practices have always been a little on the conservative side, and this is a step back to that ideology.

If you are a buyer who needs a 40-year zero-down mortgage, you can still take advantage of your pre-approval or get pre-approved before October 15, 2008, when the new rules take effect – you should probably start looking for your home now. If you currently have a 40-year mortgage, not to worry, as this only applies to new mortgages after October 15.

Tim Ayres – Sooke Real Estate Professional

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