Here’s How Tightening Regulations Have Made It More Difficult for Canadians to Borrow Money When Buying Real Estate.
Back in the good ol’ days before the world financial crisis of 2008, it was relatively easy for Canadians to get mortgages. Since then, successive governments have imposed increasingly strict rules on borrowing money to buy real estate. With a newly elected Liberal minority government promising to make housing more affordable, we might hope some of those rules will be relaxed—or at least that buyers will benefit from new incentives. For the moment, however, Canadian mortgage regulations remain quite strict. This blog post looks back at the recent history of mortgages in Canada, as well as the current borrowing climate.
Maybe Canadian officials weren’t wrong to get tough with their rules for borrowing and lending. The subprime mortgage crisis of 2007–2010 in the United States resulted in many people there defaulting on their loans when housing prices dropped and debt soared above equity. When the US economy went into recession, it was one of the major drivers of the global economic disaster in 2008.
Before the crash of 2008, Canadian borrowers enjoyed very favourable mortgage regulations. These included: long amortization periods, zero-money down options for primary residences, 5% down-payments for rental properties, and relatively lax limits on debt for people with good credit. A biggie that made it all possible pre-2008 was the lack of stress testing for borrowers. A mortgage stress test is basically checking to see if people could still afford their debt if interest rates went up.
Nowadays (in 2019), many mortgage applications are subject to stress testing, which typically means that people qualify for less than what they want to get. Some renewals are now also subject to stress testing, making it harder to refinance when a mortgage term is over. The max amortization period has been reduced to just 25 years, so monthly mortgage payments tend to be higher. And minimum down payments have gone up: 5% down for homes under $500,000 with a sliding scale that rises to 20% for properties worth more than $1,000,000.
How to Buy Property Without a Mortgage
In Alberta, it’s possible to acquire property by way of Agreement for Sale (AFS)—without needing to qualify for a mortgage. This system was formerly in wide use across Canada, and it’s still used mainly in Saskatchewan and British Columbia but more so in Alberta. Basically, AFS is a form of seller financing where the buyer takes control of the property but the seller remains on title. Rather than relying on mortgage brokers or banks, the seller is the lender!
I’ve blogged/podcasted about this before, and I also run Focus Workshops teaching people how to invest using AFS. Now, there’s even an AFS Home-Study Kit available for purchase in my online shop:
Learn How to Use Agreements for Sale (AFS)
to Buy Real Estate Without Qualifying for a New Mortgage
More Detailed Timeline of Recent Canadian Mortgage Regulation Changes
For you folks out there looking to get a mortgage, it will help to dig a bit deeper into the history of our current lending situation and how the changed regulations impact today’s market. I suggest getting it straight from the horse’s mouth by consulting an expert that I respect. Garth Chapman is a very experienced and creative mortgage broker with Jencor out of Calgary. He also invests for his own real estate portfolio, giving him a well-rounded understanding of mortgages and finance. This background makes him one of Alberta’s premier mortgage advisors. Garth has provided a great summary of the Canadian government choking the life out of mortgages as we once knew them. Check out his blog post titled “A Short History of Changes to Canada’s Mortgage Rules Since the 2008 Financial Crisis.”
If you need an Alberta real estate lawyer to help with your mortgage or AFS, contact Barry today!
“Credit Squeeze Taxation Purse Tax Economic Stress” image by stevepb used under a free Pixabay License.