Changes to Mortgage Lending in Canada

This past summer, Canada’s department of finance announced they would be making changes to insured mortgage lending guidelines, making it harder for prospective homebuyers to get a mortgage. In Canada, when you buy a property and you have less than 20% down, the mortgage has to be insured by one of the nation’s mortgage insurers. Since mortgage insurance is backed by the government of Canada, it is within their jurisdiction to mandate changes they feel are necessary. The changes, which took effect on October 15th this year were as follows:

1) Minimum 5% down required on a home purchase (previously zero down was allowed)
2) Maximum 35 years amortization (previously up to 40 years was allowed)
3) Minimum credit/beacon score requirement up from 600 to 620

These changes effectively make it harder for buyers to get mortgages. The changes were mandated in order to reduce the insurance risk and to protect Canadians.

How can prospective homebuyers deal with these changes?

Homebuyers who have been unable to save for a down payment should aim to take advantage of the Canadian Home Buyer’s Plan (HBP). In Canada, first time buyers are allowed to take up to $20,000 out of their RRSP for a down payment on a home and they do not have to pay taxes on the withdrawal. You have fifteen years to replenish the RRSP after taking out funds under the HBP. If you haven’t been making regular contributions to your RRSP, you may also want to consider taking out an RRSP loan to make the most of your allowable RRSP contribution room. Funds must be in the RRSP for at least 90 days before they can be withdrawn under the HBP.

To ensure you meet the minimum credit/beacon score requirements, be sure to establish at least two trade lines. A trade line is a credit card, line of credit or a loan. Don’t cancel older credit cards or make unnecessary loan applications -- doing so will negatively impact your credit score. Avoid carrying high balances on your cards and always pay at least the minimum amount owing.

If you are self employed, be sure to get your taxes done on time. Don’t worry about the fact that you’re not reporting a lot of income (this is a common concern for self employed people). It is understood that for accounting purposes you will minimize the amount of income you are reporting and that your ‘net income’ may not be a good measure of your ability to pay. You can still get a mortgage without have to prove income, as long your credit is good, and as long as you can prove that you’ve been self employed and working in the same business for at least a couple of years.

David Grossman talks about improving your credit on CBC's Living in Toronto

Several changes to mortgage insurance will be taking place on October 15th 2008 which will impact Canadian homebuyers. Among the changes mandated by the department of finance, the minumum beacon/credit score requirement will be going up from 600 to 620.

Given these changes, it makes it that much more important that people know what is being reported on their credit report and how to build a good credit rating.

I recently spoke with Mio Adilman on CBC's Living in Toronto about building a good credit profile. For tips on how to build a good credit profile, click on the video below.



Call me if you have questions.

Some Good Economic News for Canadians

The economy is suffering worldwide in what now appears to be a global credit crisis however there is some good news in Canada which might make you feel a little better.

Yesterday it was reported that a survey by the World Economic Forum found Canada to have the soundest banking system in the world. On a list of 134 countries Canada was ranked number one. Click here if you would like to read the article now.

Also, last Friday's Globe & Mail reported that Canadian employers created a blockbuster 107,000 new jobs in September. Though most were part time, this blew away economist’s expectations of an increase in 8,000 new jobs.

Also in Canada, sales of new vehicles rose 1.7% last month compared with the same month a year ago.

In an effort to stave off a worldwide crisis, most of the worlds banks reduced their rates this week. The Bank of Canada reduced their overnight lending rate by a half a percentage point.

The new Prime lending rates charged by the banks are:

TD Canada Trust – 4.35%
CIBC – 4.35%
Scotiabank – 4.25%
RBC – 4.25%
BMO – 4.25%

It's good news if you’re have a variable rate mortgage. Contact me if you have questions.