April 19, 2010 marked day 1 of the new mortgage rules implemented by the government to 'protect' homeowners from getting overextended and 'prevent' a major housing price bubble.

Here's a summary of these changes and how they will affect home buyers and sellers:

QUALIFICATION RATE

What's changing?

Borrowers will now need to qualify for a 5-year fixed rate, regardless of what term they choose for their mortgage.

Who does it affect?

Borrowers who put down less than 20% and want a variable rate or a 1- to 4- year fixed term rate

What does this mean?

Borrowers will now have to qualify for the 5-year fixed term posted rate (6.10% at the date of this article), instead of the rate they will actually be paying if they go with a variable rate or a 1- to 4 fixed rate (can range from 2.75% -4.39% at the date of this article).

This is going to make it harder for borrowers to qualify for a variable-rate mortgage as their income will have to be roughly 25% higher in order to be approved for the same mortgage they would have take out pre- April 19.

The government has implemented these rules to help prevent borrowers from taking on mortgages they couldn't support if rates go up (which expected to happen this summer). Many lenders we've spoken to say they already use similar guidelines to calculate a borrower's debt-service ratios, so the actual effect many be negligible for many borrowers.

REFINANCING

What's changing?

You can now refinance your home up to a maximum of 90% of its value, compared to a 95% maximum previously.

Who does it affect?

Homeowners looking to refinance their homes.

What does this mean?

This will force homeowners to keep more equity in their home, which will help safeguard them in the event of housing price drops. Unfortunately this will also mean that borrowers will be less able to restructure their debt and pay off high-interest with lower-cost mortgage money.

RENTAL PROPERTY FINANCING

What's changing?

Buyers will now have to put down a minimum of 20% of the purchase price, compared to the previous 5% if they want to qualify for CMHC mortgage insurance. 

CMHC has also changed how they treat rental income when calculating a borrower's Total Debt Service Ratio (TDS):

A) For non-owner occupied rental properties:

• 100% of net rental income is added to the borrower's gross income
• The mortgage payment, property taxes, and heat are excluded from the Total Debt Service (TDS) calculations

B) For owner occupied rental properties

• 50% of gross rent is added to the borrower's income (as opposed to 80% previously)
• Property taxes and heat are excluded from the Total Debt Service (TDS) calculations

Who does it affect?

Investors purchasing residential income producing properties.

*Note: It will not apply to multi-unit owner-owner occupied homes with rental units

What does this mean?

The changes to the down payment requirement are clearly going to make it harder for investors to purchase income producing property. This is expected to push many investors out of the market and thus reduce the supply of rental units. As a result we could expect to see a shortage of rental units on the market and/or a material increase in rents.