Karen Kinsley, president of Canada Mortgage and Housing Corp. says potential home buyers who apply for interest-only mortgages won't face any less stringent criteria for income, credit history and collateral than those applying for traditional mortgages.
Bank of Canada Governor David Dodge told reporters that he feared that incentives for interest-only mortgages could be inflationary. If so, that would work against the national housing agency's stated aim of making housing more accessible to Canadians, Mr. Dodge said.
Home purchase loans that require only a repayment of the interest each month are often considered high risk.
Mr. Dodge pointed to other countries where interest-only loans have encouraged home buyers to take on larger mortgages than they can comfortably afford. In the United States, for example, economists fear such easy money has contributed to a housing bubble.
But after meeting with Ms. Kinsley later on July 13, Mr. Dodge's concerns were eased, Bank of Canada spokesman Jeremy Harrison confirmed.
"We were reassured by the fact that CMHC's interest-only mortgage product includes no change in mortgage qualification criteria and as such would not be of significant concern to the bank."
Just over two weeks ago, CMHC, a Crown corporation, announced it would be offering insurance on interest-only mortgages, waiving application fees for some loans and insuring mortgages with amortizations of up to 35 years.
In the past, the agency required 10 per cent down and gave buyers up to 25 years to pay the mortgage off.
CMHC provides insurance for the lenders who provide mortgages to homeowners.
Home buyers who apply for the interest-only mortgage must have an income that is able to support a repayment of principal and interest for a 25-year amortization period at the lender's 3-year fixed rate of interest.
As a rule, the home buyer's principal, interest, heating and property tax costs should not exceed 32 per cent of their income.
With an interest-only mortgage, homeowners have the flexibility to put more cash toward the mortgage when they're able and stick to repaying the interest only during months that are lean.
"Perhaps in the early years you've got other one-time expenditures to make -- appliances and other things," Ms. Kinsley says. "This gives them the flexibility, if they need it, to be able to make those expenditures but still with the comfort that we have that they're able to carry the mortgage even on an interest-only payment."
Because the criteria has not been relaxed, the number of people who qualify won't increase and thereby bring a flood of new house hunters into the market, Ms. Kinsley explains.
"[Home buyers] have to have a strong credit history and a strong capability to be able to support the mortgage they're applying for."
For more mortgage news, current interest rate go here -
http://www.torontogreathomes.com/ONTARIO_MORTGAGE/page_929364.html
theglobeandmail.com
TORONTO REAL ESTATE. Interest-only mortgages
![TORONTO REAL ESTATE. Interest-only mortgages]()
Reviewed by citra
Published :
Rating : 4.5
Published :
Rating : 4.5