Jury out on mortgage rules

Jury out on mortgage rules

By ROGER TAYLOR Business Columnist
Wed. Feb 17 – 4:53 AM

A HOUSING bubble? What housing bubble?

Nobody wants the Canadian housing sector to experience the same over-inflated market conditions that occurred in the U.S. and helped create the global financial crisis of 2008.

Could it be that Canada’s real estate market will imitate that experience and come crashing to earth too?

Sustained low interest rates, financial instruments such as interest-only mortgages and the ability to deduct mortgage interest from income tax are some of the reasons for the real estate bubble south of the border.

Canada only has a low interest-rate environment to worry about. Still, Finance Minister Jim Flaherty said on Tuesday the government will be taking steps to slow down the Canadian market before it gets out of control.

To help discourage homeowners from signing up for a mortgage that is more than they’ll be able to afford as rates go higher, Ottawa will adjust the rules for government-backed insured mortgages effective April 19.

All borrowers will be required to meet the standards for a five-year, fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.

The government will lower the maximum homeowners can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their home.

And to cut down on speculation, Ottawa will require a minimum down payment of 20 per cent to get government-backed mortgage insurance on non-owner-occupied properties.

Tim Hockey, president and CEO of TD Canada Trust, told me in a phone interview that he supports the “balanced approach” taken by Flaherty to pre-empt an overheating of the real estate market in Canada.

Now, Hockey said, his company is advising clients not to buy a home just because they can afford the mortgage at today’s historically low interest rates.

“The fact of the matter is there is only one way for mortgage rates to go, and that’s up.”

The delay in implementing Flaherty’s changes may actually have a “pull forward” effect on the market, he said, with sales that might have happened later in the year being accelerated to beat the government’s deadline.

“There’s also the harmonized sales tax effect in Ontario, in particular, that is also pulling sales forward. So there will be a little bit of heating in the short term but . . . because these rules are not intended to be just for a short period of time, it will have a moderating effect over time.”

Meanwhile, veteran Realtor Al Demings told me he doesn’t believe the changes will be a really big issue for the Nova Scotia market.

“First-time buyers seem to be a catalyst, taking hold of the market this winter a little more than usual. And I think a lot of that was they were concerned the rates were going up. So they were moving now.”

In particular, demand for small investment properties in metro is very strong right now.

Demings said Flaherty’s changes will probably slow that part of the market because there will be fewer buyers who will qualify for financing.

Linda Smardon, president of the Nova Scotia Association of Realtors, said there isn’t a bubble in the Nova Scotia market so adjusting the mortgage rules is not critical here. But that doesn’t necessarily mean change is a bad thing.

People who find it difficult to manage a mortgage payment with today’s low interest rates, she said, will find it that much more difficult when rates rise.

While Realtors obviously believe in real estate as an investment and help people get into the market, Smardon said, her association also believes in affordable housing so the homeowner isn’t in a stressed position.

Posted via web from Toronto Real Estate News | Blog

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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