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New Mortgage Lending Guidelines for Canadians

CALGARY, Alberta, April 19, 2010 — Today will see a change in policy when it comes to lending guidelines for Canadian mortgage borrowers. The government of Canada has decided that the new rules below were necessary in order to continue to grow the economy at a steady pace without creating a mortgage or credit crisis seen elsewhere in the world.

Changes to Qualifying Interest Rate

Where a mortgage borrower is applying for a variable rate mortgage term or a fixed term less than 5 years in length, they must now qualify based on the benchmark rate (5-yr conventional mortgage rate) which is published weekly by the Bank of Canada OR the lender contract rate, whichever is greater.

For example: Today the Bank of Canada benchmark rate is set at 5.85%. The average lender contract rate currently is set at around 4.50%. So, the qualification criteria would be based on the Bank of Canada benchmark rate of 5.85%

For loans with a 5 year fixed term or longer, the mortgage rate for qualifying would be the lender contract rate.

Some applications dated before April 19, 2010 may continue to be adjudicated based on the old rules provided the borrower has a legally binding purchase and sale agreement that’s also dated before April 19, 2010. This does not apply to ALL lenders though so, be aware that the new rules may apply even if you started the process prior to April 19th. Some lenders and insurers in Canada had already started qualifying based on the new rules prior to April 19th.

Changes to Loan to Value (LTV) in Rental and Alternative Lending programs.

For alternative A programs (self employed individuals who stated their income) they can refinance to 85% LTV and purchase up to 90% LTV. This is a 5% equity change for both products.

For normal consumer refinances the LTV has dropped to 90%. Purchases can still be up to 100% LTV when proper qualification criteria is met.

Rental Properties can be purchased with a maximum LTV of 80% and refinances will remain at 80% LTV.

Rental property income changes

Owner occupied properties, which can be purchased up to 95% used to allow an addition of 80% rental income to the borrowers gross income in order to help them qualify for the mortgage loan. This has now been changed to 50% of gross rental income.

Rental properties will require rental income to be confirmed with recent tax returns. If there is a surplus in rental income it is added to the borrowers gross income, if there is a shortfall it will be added to the borrowers monthly debts like any car payment would, for example.

If there is no CMHC, Genworth or similar insurance on the mortgage (meaning there is more than 20% equity) the regular 80% gross rental income will still be used.

News source: The Canadian Equity Group (CEG)


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