Two months ago, in order to turn down the overheating real estate market, federal mortgage rules were implemented and took effect on this Monday, April the 19th. Finance Minister Jim Flaherty outlined these new regulations for borrowers and lenders to qualify for a mortgage in Canada. "There is no evidence of a housing bubble, but we?re taking prudent steps today to prevent one," Flaherty said at the time. Some of the new rules are:
- All borrowers must meet the standards for a five-year, fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
- The maximum a mortgage can be refinanced has been lowered from 95% to 90% of the value of the home. This reduces how much a borrower can tap into the equity of their house.
- Mortgages for homes in which the borrower will not occupy will now require a 20% down payment. It was 5% previously. This reduces speculation in residential real estate since borrowers now have to put up serious money in order to buy.
The five-year rate requirement is likely to have a huge impact, as borrowers must now meet stricter standards and provide more documentation for their income.
Real estate in Canada has been letting the potential buyers take advantage of the record low rates in a fast improving economy since late 2009. The average national price last month was $340,920. However, that fast pace at which the real estate grew has slowed down lately. Sales have been down in four of the last five months as the number of new listings has increased. Year-over-year price changes are still up by about 17 per cent, but that is compared to prices during the worst time of recession. By the May or June of this year these comparisons will look remarkably different.