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The federal government is expected to tighten mortgage rules in an effort to cool the red-hot housing markets in Toronto and Vancouver, CTV News has learned.

 

The new regulations will increase the minimum down payment required to buy a home for more than $500,000, with portions beyond that amount requiring a 10 per cent down payment. The down payment on the first $500,000 will remain at five per cent.

 

For example, a home costing $700,000 would require a $45,000 down payment – a five per cent down payment on the first $500,000, added to a 10 per cent down payment on the remaining $200,000.

 

The regulations are expected to take effect in early 2016.

 

Buyers shopping for homes below the $500,000 mark will be unaffected by the new rules.

 

The announcement is expected from finance minister Bill Morneau sometime Friday morning. The government is expected to stress that the new rules are designed to foster equity and dissuade cash-strapped buyers who may be seduced by low interest rates.

 

The decision is based off research by the C.D. Howe Institute, an independent think tank.

 

The move is expected to take pressure off the Canada Mortgage and Housing Corporation (CMHC), which offers mortgage loan insurance for properties valued below $1 million.

 

Since the 2008 recession, the federal government has made it more challenging for Canadians to obtain CMHC-insured mortgages.

 

For homebuyers with a down payment of less than 20 per cent, the government decreased the maximum amount of time allowed to pay off a mortgage to 25 years from 40 years.

 

The move was intended to dissuade borrowers from making riskier purchases and instead encourage them to invest in less expensive homes.

 

CTVNews.ca Staff

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Despite the snowstorm much of the East Coast saw recently, Canada’s most celebrated groundhogWiarton Willie predicted an early spring this year. Whether you’re a first-time buyer or a homeowner looking to make a change, people who look at the real estate market are most drawn to doing so in the spring - and why not? The sun is shining as the snow starts melting, which makes the thought of trekking around the city in search of a new home to settle into before summer that much more appealing. But is spring 2013 really the best time to buy?

 

For months now, the media has been reporting that Canada’s apparent “housing bubble” is getting ready to burst.

 

But as one reporter finally pointed out, there is no housing bubble. We can be pretty sure Canada won’t experience any kind of crash comparable to what the U.S. saw a few years ago. While interest rates are low – making the appeal of buying simply to lock in at a low rate more appealing – supply and demand is steady.

 

This is good news for current homeowners, but what about first-time buyers? Aside from considering the neighbourhood and the type of home you want to live in, the two biggest concerns on most buyers minds are whether or not both home sales prices and interest rates are going up. While it seems like the average home sales prices are continually climbing in Toronto and Vancouver, mortgage rates have remained rock bottom for months.

 

Last month, Mark Carney announced that the Bank of Canada would leave the overnight lending rate at 1.00 per cent for the 28th consecutive month in a row, signalling that mortgage rates won’t be going up anytime soon.

If you’re not sure what that means, the overnight lending rate is the interest rate at which banks borrow from, which usually trickles down to the consumer level. For example, if Carney were to increase the overnight rate by 1.00 per cent, banks would likely increase their prime rates by 1.00 per cent shortly after. For homeowners with variable mortgages attached to prime rate, an increase of 1.00 per cent could be detrimental to their monthly budgets.

 

Let’s say you had a $350,000 mortgage with a 5-year variable rate of 2.60% (Prime – 0.40%) - your monthly mortgage payment in this example is only $1,548. But if your lender increased its prime rate by 1.00 per cent, a quick mortgage calculation shows that your new rate of 3.60% would bring your payment up to $1,724. Coming up with an extra $194 every month isn’t easy for most Canadians – which is pretty clear from our current struggles with household debt, which continues to rise.

 

But, as Carney’s announcement signalled, you may not have to worry about an interest rate hike for a while. As the economy continues to show only moderate growth, and supply and demand remains steady, raising interest rates would be counteractive. While many economists were originally predicting an interest rate hike in the first half of 2013, as it looks now, it’s safe to say rates will remain low through the spring.

 

If you’re looking for new properties, this means that spring 2013 could be a great time to start shopping around. Not only does Finance Minister Jim Flaherty suggest the housing market is beginning to cool, but you could also lock in at some of the lowest rates your mortgage will ever see.

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