Ottawa hints at tighter mortgage regulations

By Benjamin Bach, the Wealth Team on December 21, 2009 in Featured Articles, Real Estate Investment

Hints by Finance Minister Jim Flaherty that Ottawa may tighten mortgage eligibility rules to avert a possible housing bubble sent ripples through the industry Monday, with analysts urging a cautious approach to avoid damaging the economy.

Mr. Flaherty told CTV’s Question Period that one thing the government will likely do is increase the minimum down payment on residential mortgages from 5 per cent “to a higher figure.”

The government may also reduce the amortization period from a maximum of 35 years “to something less,” he said.

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The effect of any move to reduce the maximum amortization period would be difficult to judge. The last time that happened, when the period was reduced from 40 years to 35, “was probably not significant because not a lot of people were going to 40 and we hadn’t had it that long,” Mr. Siegle said.

Meanwhile, Mr. Tal took some comfort from the fact that Mr. Flaherty was not specific as to the size of the increase in down payment and reduction in amortization period the government was considering.

“The trend (on consumer debt) is not extremely positive but the situation is not alarming,” he said.

“I think they’re concerned about the next 12 months and where we will find ourselves a year from now. So they’re trying to be pre-emptive here and basically start to make sure the inflow of new business is of a higher quality.”

“Therefore I don’t expect this to be a huge increase (that would have) … an unreasonable and unnecessary impact.”

I’ve spoken to some other investors today who are a little annoyed that Flaherty isn’t speaking in specifics – i.e. raising minimum downpayments from 5% to 7,5% or 10%, or taking amortization terms from 35 to 30, or 25 – and I concur with them. I would like to see the government give some certainty when they start speaking about changing the rules for buying and investing in real estate, as opposed to speculating about possible changes.

If you are looking at a condo or home that is $200,000, a 5% downpayment is $10,000. If the minimum downpayment required goes up to 7.5% or 10%, the minimum initial investment required would be $15,000 or $20,000 at 10%.

If you are looking at buying real estate, whether to live in or as an investment to rent out, I recommend talking to your mortgage professional immediately to lock in loan terms. When they start talking about changing regulations around mortgages, the rules can change at any time. If you were looking to take advantage of either the 5% down or 35 year amortization schedule, they are available today (depending on credit etc.), but there isn’t certainty about the future.

Contact me by email or phone (519.772.4376) to discuss finding the right opportunity for you right now.