Mortgage Rules Which Have NOT Changed … Very Much

The news and we mortgage professionals have been talking relentlessly about all the changes to the mortgage rules. It has been one after another, and it is no wonder that the average Canadian is feeling a bit bewildered by the whole thing. Instead of talking about what has changed, we thought we should spend a week on what hasn’t:

1. You can still purchase a home with 5% down. Let’s take a closer look at this, as there seems to be a lot of “but my cousin Bob said” around this topic:

  • You may buy home after home with as little as 5% down, as long as you are willing to pay the mortgage default insurance each time and qualify.
  • If the home is worth more than $500,000, then you need 5% on the first $500,000 and 10% on anything over, up to $1,000,000, where the rules change.
  • If you are in the midst of a separation, you can refinance the home up to 95% of its value to pay out your ex and possibly any debts.
  • A second home can be purchased for family with 5% down.
  • A vacation home can be purchased with 5% down.
  • If you turn your current home into a rental, you can still purchase the next home with 5% down.
  • CMHC will only insure one property for you, but there are two other insurers.

2. You can still use borrowed funds for the down payment.

  • Only certain lenders allow this. 
  • You must have a very strong credit and employment history.
  • The money can be borrowed from a credit card, loan or line of credit and must be included in your overall debt servicing.

3. You can still take up to 35 years’ amortization if you have more than 20% down.

4. You can still take up to 25 years if you have less than 20% down.

5. You can still refinance your home to pay out debts, renovate your home or invest. 

  • There will be the cost of an appraisal and legal fees and potentially a penalty to break the first mortgage.
  • You will have to go through the mortgage process and provide all relevant documentation.
  • Rates for conventional mortgages are higher now, so factor that into the overall costs.

6. You can still get up to $40,000 or 10% extra with the mortgage at the time of purchase for substantial improvements to the new home.

  • The quotes must be submitted at the time of application for review.
  • The money is not released until after an inspector has confirmed ALL the work is complete.
  • You must have the down payment on the whole amount.

7. You can still use RRSPs (without penalty for your first home), get a gift, TFSAs, stocks, bonds, mutual funds, tax refunds, savings or sell an asset for the down payment.

When you are looking online to see how much you will qualify for, remember to use a rate of 4.99%, no matter how much you have to put down on the home. That is one thing which did change across the board, and we would hate to see you fall for a home outside your budget. There have indeed been a whole bunch of changes, but home ownership is still possible. Have a great week, and remember to contact us for further assistance with anything mortgage related in Red Deer or Calgary!

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