Three new lending guidelines were recently released by the Federal Government. The guidelines are to be enforced effective April 19, 2010. Below is a list of the new rules along with an explanation:
1) All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. – Currently, some lenders will allow you to qualify at the 3 and 4 year fixed rate terms when choosing a fixed rate mortgage term of less than 5 years. In addition, for variable rate mortgages some lenders will allow you to qualify at their best 3 year term fixed rate. The 3 year fixed rate is normally lower than a 5 year fixed rate. The lower qualifying rate allows you to qualify for a larger mortgage and thus a higher purchase price. Under the new rules, you will no longer be able to take advantage of the shorter terms and lower rates to qualify for a higher mortgage. For example, with an income of $50,000 per year, no other monthly debt and great credit, your current maximum purchase price would be approximately $400,000 with a 5% down payment. This maximum purchase price is based on the current 3 year qualifying rate with property taxes not to exceed $1,900/year and no condo fees. When the new rule takes effect, your maximum purchase price decreases to approximately $375,000 with 5% down payment. This maximum purchase price is based on the current 5 year qualifying rate with property taxes not to exceed $1,700/year and no condo fees. The $375,000 maximum purchase price is regardless of whether you choose a fixed, variable, or a term of 5 years or less.
2) The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home. – This change allows you to borrow less upon refinancing your existing property. This means if your property is valued at $300,000, the maximum you could borrow today is $285,000 (95%). However, after the rule change takes effect your maximum borrowing power drops to $270,000 (90%). This change only applies to existing owner occupied properties for refinance purposes.
3) Non-owner occupied properties will require a minimum down payment of 20%. – Currently, you have the ability to purchase an investment/rental (non-owner occupied) property with as little as 5% down payment. After the changes take effect, 20% down payment will be required. This means if you were to purchase an investment/rental property valued at $300,000, currently your minimum down payment is $15,000 (5%). When the new rule takes effect, your minimum required down payment to purchase the same property will increase to $60,000 (20%).
You may have heard news in regards to increasing the minimum down payment for owner occupied purchases from 5% to 10%. In addition, there was discussion about lowering the maximum amortization period from 35 years to 30 years however, these guidelines were not affected with the changes. Thus, you can still purchase owner occupied properties with 5% down payment and amortize your mortgage for 35 years.
As mentioned, the deadline for the lenders to make the appropriate changes is April 19, 2010. However, we expect the lenders to adopt the new guidelines before the April 19, 2010 deadline. If you are requiring mortgage financing and you feel that the above rule changes will affect you, don’t wait, please contact us today to start your mortgage application immediately.
We hope that you now have a little more knowledge about the new mortgage guideline changes. If you have any further questions about the above changes please feel free to contact us anytime.
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Any questions at all about mortgage financing please refer to our newly designed website at http://www.yourmortgagecontact.com/ or call us today. In addition please let your family and friends know about Your Mortgage Contact. We appreciate all referrals and everyone always receives personalized service. Please contact Betty at 403-532-3927, e-mail bsaskiw_prolink@telus.net, Kevin at 403-589-3021, kevsas@telus.net or at our updated website: http://www.yourmortgagecontact.com/
Sincerely,
Betty Saskiw, AMP
Mortgage Associate
&
Kevin Saskiw, CFA
Mortgage Assistant
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