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New Mortgage Rules Canada: What Has Recently Come Out?

Irfan Ameer
Irfan Ameer
5 Min Read

The Federal government’s new mortgage rules Canada will significantly reduce down payments for home buyers. This will be on homes which are worth more than $1-million. This is according to the technical details released Tuesday.

Contents
New Mortgage Rules Canada: What did Sean Fraser Say?Why Are New Mortgage Rules Canada Important?a. Protecting the borrowers and lendersb. Providing legal recoursec. Preventing fraud and other lossesd. Ensuring ethical business practicesWhat Are The New Mortgage Rules Canada?

The new rules, will take effect from December 15. It will require buyers to put down a minimum of 5 percent on the first $500,000 of the purchase price and 10 percent on the portion between $500,000 and $1.5-million. This is as per the new guidance. Thus, on a home that costs $1-million, the minimum down payment will be $75,000. This will be down from $200,000 under the current rules. Likewise, on a $1.5-million home, it will be $125,000.

New Mortgage Rules Canada: What did Sean Fraser Say?

Sean Fraser, the federal Minister of Housing, Infrastructure and Communities, said at a news conference that the new mortgage rules Canada changes are going to “potentially reduce the down payment required by tens of thousands of dollars for people trying to get into the market, particularly in larger urban environments where the purchase price is much higher.”

Buyers must currently put down a minimum of 20 percent of the home price. This is to be done if the property costs more than $1 million, so they would need at least $200,000. That requirement has made it difficult for many prospective buyers in the Vancouver region in Toronto. It has also affected many parts of Southern Ontario where the typical home price is more than $1 million.

Buying a home that costs less than $1 million may make a down payment of less than 20 percent. However, it would only be required to take out mortgage insurance to protect the lender. Currently, the insured mortgages are only available for homes. This will cost less than $1 million. Furthermore, they are based on the size of the loan relative to the buyer’s down payment.

Why Are New Mortgage Rules Canada Important?

The new Mortgage Rules Canada are very important. The following states the reason why:

a. Protecting the borrowers and lenders

The mortgage agreements outline the terms and conditions of the loan. This is good as it helps to protect both the borrower and the lender. 

Mortgage agreements are known to provide legal protection in case of default or non-payment. It can also help to ensure that the borrower can regain possession of the property once the loan is repaid. 

c. Preventing fraud and other losses

The mortgage compliance helps to protect lenders from fraud and other losses. 

d. Ensuring ethical business practices

The mortgage compliance thoroughly helps to ensure that eligible buyers are not denied access to funding. Along with it, the borrowers will not get an opportunity to overextend themselves. 

e. Keeping up with market changes

The mortgage providers need to constantly update their products and policies. This will be required to keep up with the rapidly evolving market.

What Are The New Mortgage Rules Canada?

Under the new mortgage rules Canada that were unveiled last week, the buyers will be allowed to get an insured mortgage on homes. This will be under the new mortgage rules Canada and it will be worth as much as $1.5 million. Plus, the first-time buyers will be allowed to get an insured mortgage with an amortization of 30 years. This will be done instead of the current maximum of 25. Thus, this will get onto reducing their payments by stretching them out over a longer period of time.

The realtors and mortgage brokers have said that the higher insurable amount will help buyers who were looking in the $1-million price range. Also, for making the minimum down payment on a $1.5-million home, this will mostly help the high-income Canadians.

“It is a small subset of insured borrowers who will benefit from this,” said Don Scott, chief executive of Frank Mortgage, which brokers residential loans.

According to Mr. Scott’s calculations, under the new mortgage rules Canada, a homeowner with a $1.375-million mortgage would have monthly mortgage payments of $6,900. This were to happen if the loan were amortized over 30 years. This is with today’s lowest insured rate, 4.1 percent. This thoroughly means that they would need an annual household income of at least $250,000 to carry that mortgage.

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