Government Trying to Put a Fork in the Real Estate Market

17 March 2010

My last rant – I mean blog on mortgages pointed out the fact that the Federal Government had introduced new rules for CMHC Mortgages. One of the new rules coming into force for April 19 was that borrowers had to qualify at the five year mortgage rate, regardless of the term of the mortgage for which they were applying. But no one knew which five year rate to use. Of course we all surmised that this was just another make work project and that the Government would soon establish a ‘posted’ rate for everyone. Now the Government has established the ‘posted’ rate and it will be announced each Monday. It starts at 5.39%. But the Government rule now states that you may qualify at either the posted rate OR the contract rate if you get a mortgage for a term of five years or more. You can get a five year rate from some lenders at 3.75%. Guess what everyone will do? They will just apply for the five year discounted rate. Now there will only be a single mortgage term going forward for all buyers with less than 20% down – five years!! In the long run, only lenders with five year money will be able to compete – read banks! We will soon have fewer lenders, fewer choices, and the consumer will get screwed. But at least we know that the Government is looking after our best interests.