With the new government rules effective April 19, 2010, all variable mortgages (as well as lines of credit & fixed mortgages of 1 to 4 year term) have to qualify based on the 5 year posted rate.
What does that mean? The lenders calculate the mortgage payment as if the borrower is paying the posted rate, today it is at 5.99%. The benefits of this rule is to protect homeowners from rising interest rates and prevent a US style real estate crash.
The problem: Historically, data from one of the big banks, shows that homeowners have saved money with variable mortgages (based on the last 25 years of interest rates data). The new qualification rule makes it more difficult to qualify for a variable mortgage and some homeowners are forced to get a fixed rate product at higher interest rates.
How will anyone qualify for a variable mortgage when the posted rates reach 7-8% over the next few years as the economic conditions improve? I believe this qualification rule, prohibits Canadians from saving thousands of interest dollars and will benefit the banks who are more profitable with 5yr fixed products.
I hope this rule will be modified by the Ministry of Finance in the future.
Nawar Naji, AMP
Mortgage Broker
www.GTAmortgageAdvisor.ca
