Finance Minister Jim Flaherty has announced three new mortgage rules saying the government is taking “proactive, prudent and cautious steps” to prevent a housing bubble. Well, there’s probably no reason for alarm: these new mortgage rules won’t affect most homeowners or buyers.

The gist of the new rules is that it won’t be as easy to teeter at the top of your lending limit; the government thinks homeowners should have a bit of equity hedge and a realistic expectation of what they can pay each month. Most Canadian home-buyers are already managing their mortgages according to these standards anyway, although some new and very leveraged buyers could be affected.  Real estate investors and speculators may notice these rules the most, which take affect April 19, 2010. Here’s the quick rundown on what’s new:

Think five-year, fixed-rate. Whatever kind of mortgage you eventually decide on, the new rules say that you must qualify for a standard five-year, fixed-rate mortgage. What you choose, of course, is up to you and your mortgage planner; you may opt for a shorter term and /or a lower rate. While the government has said this test will help home-buyers prepare for higher rates, most lenders were already qualifying homeowners on the three-year fixed rate. As a result this shouldn’t affect too many home-buyers.  Buyers who don’t qualify for the five-year, fixed rate will need to downsize their expectations on how much home they can afford. Based on a 5-per-cent down payment, 35 year amortization, and a home price of $300,000, a buyer would need about $7.400 more in annual income to qualify under the posted five year fixed rate versus the three year rate. Continue reading »