Making Dollars and Sense of Mortgages

The federal government recently introduced new measures to strengthen housing financing. The new requirements for government-backed insured mortgages include:

• All borrowers are 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 maximum amount Canadians can withdraw in refinancing their mortgages has been lowered to 85 percent from 90 per cent of the value of their homes.
• A minimum down payment of 20 per cent is required for government-backed mortgage insurance on non-owner occupied properties purchased for speculation
• If you haven’t saved for a down payment, a five-percent down payment is the minimum unless you are willing to financing your down payment through the lenders cash-back programs or on your own and are willing to pay a premium in your Canada Mortgage and Housing Corp. (CMHC) insurance and interest rate.
• Purchase Plus Improvements are available on insured mortgage loans to cover the purchase price of a home, as well as an amount to pay for immediate major renovations or other improvements the purchaser may wish to make to the property. This option eliminates the need to obtain secondary financing after the purchase to pay for improvements.
• Receive a 10 per-cent rebate on your CMHC insurance premium when purchasing an energy-efficient home or when renovating your home to meet energy-efficient guidelines.
• Traditionally, self-employed and commissioned sales people have struggled to buy their first home as the down payment requirements were stringent a minimum of 25 per cent. Now, with limited income verification, entrepreneurs and commissioned sales people can purchase with as little as 5 per-cent down. If you require additional information on government-backed (insured) mortgages, please visit www.cmhc.ca for more information.

When considering your options for a mortgage, here are a few tips:

• Consider a shorter amortization. The shorter the amortization, the less you pay in interest.
• Make a larger down payment. If you can provide a bigger down payment, it’s a great way to help you pay less interest over the life of your mortgage.
• Consider a minimum 10 per cent downpayment.
• Make sure you can afford what you signed up for. Stress test your financial budget using a mortgage payment based on a higher interest rate.
• Make pre-payments when you can. Pay weekly or biweekly instead of monthly and take advantage of pre-payment privileges.
• Always make sure you save up for a rainy day. If you’re up to your maximum debt, you may not be well prepared for the leaky roof along the way.
• Think carefully about fixed versus variable. While variable-rate mortgages have been a winning strategy over the long term, fixed-rate mortgages come with the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.