Mortgage Changes Expected to Hurt Low-Income Canadians

Changes to the way that mortgages are administered in Canada took effect April 19th, with many analysts worrying that the new regulations would impact low-income Canadians negatively. Applicants with less than 20% of a down payment on the total value of the property must now meet standards for a five-year fixed-rate mortgage, even if they want a shorter-term variable-rate product. Failure to meet these standards would make it almost impossible for the buyer to qualify for mortgage insurance through CMHC or private firms - necessary if an applicant has less than 20% of a down payment. Experts from TD Bank of Canada expect that the changes will raise the required annual income of a mortgage applicant by about $5000-$8000, out-pricing many lower income Canadians.

Other changes that will impact low-income Canadians include raising the minimum down payment for rental properties from 5% to 20%. This is expected to further constrict the supply of affordable rental units, a market that already faces severe shortages in many cities.

Finance Minister Jim Flaherty explained that the changes intend to protect Canadians from overextending themselves financially. It will also protect CMHC, a government body, from having to insure what Flaherty described as 'speculative' mortgages, and loans that often led to default.