Can You Handle These New Mortgage Rules?

New Mortgage Rules In Canada

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If you are planning to buy a house with 100% financing and a 40-year mortgage, think again. Government of Canada has implemented new mortgage rules for CMHC-insured mortgages effective October 15, 2008. Home buyers in Canada are required to purchase CMHC (Canada Mortgage and Housing Corporation) insurance if down payment amount is less than 20%. Let’s look at these new rules:

o Highest amortization period is now 35 years. No more 40 years amortization.

o No more zero down payment. The minimum down payment requirement is now 5%.

o Higher credit scores will be required.

o Document scrutiny to be tightened.

In a statement, the finance department stated that these changes were made to reduce the risk of a U.S.-style housing bubble developing in Canada.

My Take

I was never a fan of zero down payment mortgages. Home buyers who already started with a zero down payment mortgage, will be lengthening their amortization period significantly – unless they make additional payments each year. Once you buy a house, you primary objective should be to pay off your mortgage as early as you can. I recommend buying a home with more than 5% down payment and less than 35 years amortization. Doing so can save you a lot of money and years – it makes perfect financial sense.

Related Post – Toronto’s Red Hot Real Estate Market

For more info – Canada Mortgage and Housing Corporation