Couples and individuals who are trying to obtain or renew a mortgage should know how the mortgage process works, as well as the recent changes in mortgage laws. This will make for a smoother transaction for everyone involved.
One of the first steps in the mortgage process, whether it's a first mortgage
or a mortgage renewal
, is to get qualified for the mortgage. Bankers and mortgage lenders in Canada use four factors to determine eligibility.
How the New Mortgage Rules Affect Borrowers
- Income - The first thing the banker is going to want is to ensure that you can make payments on the loan.
- Credit history - How have you been about paying bills in the past? This is also important to a banker, which is why they request a copy of your credit report.
- Property - The bank is going to want to know what kind of property you're buying and if it's worth the money. Remember that if you can't pay the loan, the bank becomes the owner of the property, so they want to be assured they'll get back their investment if they have to repossess and sell.
- Down payment - By law, if your down payment is less than 20 percent, you must purchase mortgage insurance to quality for a mortgage. Down payments are generally the biggest reason why couples and individuals can't afford a mortgage today.
As of July 2012, the Canadian government, in an attempt to stabilize the Canadian housing market, implemented some new laws and rules regarding Canadian mortgages. It's important to know how these laws, which affect both new mortgages and refinances, will affect your financing options.
- Reduction of maximum amortization period - The amortization period (time you have to pay off the mortgage loan) has been reduced from 30 years to 25 years. This law was designed to lower the amount of interest borrowers pay over the life of the loan.
- Reduction of refinancing amount - The law states that borrowers can only borrow up to 80% of the appraised value of the property on a refinance. For a home worth $200,000, the borrower will only be able to access up to $160,000 on a mortgage refinance. The purpose of this law is to ensure that homeowners continue to have more equity in their home.
According to HuffPost Business
in Canada, the Canadian housing market is stronger than ever and will continue to remain stable throughout 2014. The Internet is playing a large part in the real estate market and helping to educate homebuyers with what options are available. While this may hurt the traditional real estate agencies, it adds competition so consumers have access to the best possible deals. Financial Post
reports that despite the fact that some housing markets in Canada are overvalued, sales and prices will continue to be attractive for potential homebuyers this year. As of February 2014, sales were up 2.1% over what they were a year ago, and that trend is predicted to continue throughout the year.