I am writing this just minutes after Jim Flaherty’s February 16, 2010 press conference and typically I now have more questions than answers. I makes me nervous when the government feels they need to intervene to protect citizens from themselves. Call me a cynic, but here are the three points to the plan, the intent behind it and the questions I have:
1. All borrowers must meet the standard for a five-year fixed rate mortgage regardless of mortgage type or term. Currently the standard is the three-year rate, which is historically less than the five year term. The intent of the change is to make Canadians qualify at the higher rate so that they can actually make payments at the higher rate should interest rates rise. In effect, they would now qualify to purchase smaller homes then they would have previously qualified for. My question: What happens when someone needs to refinance, can afford the “actual” mortgage payments, yet cannot qualify for financing under the “theoretical” five year mortgage rate? Do they lose their home?
2. The maximum Canadians can withdraw when refinancing their mortgage is 90% of the value of their home down from 95%. The intent is for Canadians to maintain some equity in their home if real estate prices drop and also to encourage Canadians to pay down their mortgages. My question: If Canadians are refinancing to consolidate debt, why would you force them to potentially carry 5% of additional credit card or other higher interest debt over what a mortgage solution would afford?
3. A 20% down payment will be required for non-owner-occupied properties purchased for speculation. The intent is to make it more difficult for average Canadians to use real estate as a wealth generating strategy, in order to protect them from risky speculation and artificially driving up housing prices. My question: Does this policy apply to 2nd homes such as cottages? My rant: How nice for our government to tilt the real estate playing field in favour of the rich.
These new rules are to take effect April 19, 2010 but you can bet that lenders will begin to react immediately. Fortunately these policy changes will open the door of opportunity for some as it closes the door for others. Please take this time to review how these changes might affect you or your clients moving forward, and then call me to discuss your best strategy to take advantage of the new policies.
We welcome your comments
Sure the new laws protect the average Canadian from risky speculation, but as you say it also prevents them from the managed risk of purchasing an investment property as a way to get ahead.
This is exactly what Robert Kiyosaki talks about with the vanishing middle class and the widening gap between the rich and the poor. And the government is only perpetuating this.
Dear Jason:
It is frustrating to see policy changed on an apparent whim, without thought to the consequences. We predicted previously, that there would be a problem if interest rate were to rise substantially, so we will see an increase in homes on the market that people no longer can afford. In terms on the rental market, my job is to now develop programs that will still allow the average Canadian to participate. I have some creative ideas involving a combination of 2nd mortgages, joint venture and profit sharing.