30 Oct

5 SIMPLE STEPS TO OWNING YOUR OWN HOME

General

Posted by: Mike Hattim

Often, the route to owning your own home can seem like a trip to the moon and back.

Really though, it comes down to five key steps:

1 – Manage your credit wisely.
If there is one thing that will gum up the purchase of that perfect home, it’s an unwise purchase or extra credit obtained. Keep your credit spending to a minimum at all times, make every payment on time and most of all pay more than the minimum payment. Remember that if you just make the minimum payment on your credit cards, chances are you will still be making payments 100 years from now.

2- Assemble a down payment.
At first glance, the challenge of finding a down payment can seem insurmountable. In fact, you just need to consider all the sources for down payment funds. yes, you will have saved some but remember you can also, in some situations, use RRSP funds, grants ( BC Home Equity Partnership for example ) and non traditional sources like insurance settlements, severance and of course, gifted funds from a family member. Don’t forget that you’ll need to demonstrate that you’ve had the funds on deposit for up to 90 days and also that you have an additional one and a half percent of the mortgage amount for closing costs.

3- Figure out how much you can afford.
It’s at this point that most people usually stop and scratch their heads. Some even try and tough it out, using the raft of online calculators to figure it out, but new mortgage rules can make even that a challenge.
If you talk to a Dominion Lending Centres mortgage specialist ( like me! ) though, they can help you figure it out and even go as far as getting you a “pre-approval” from a financial institution. This can give you the confidence you need to actually start looking around.

4- Figure out what you want.
You’ll want to make a list of things your new home has to have and what the neighbourhood has to have. Things you want to think about are the things that are important to you now; is there access to a dog park? Is there ensuite laundry? Divide the list into things you can’t live without and things you’d like to have. It’s way easier to look when you know what you want to look at.

5- Look with your head, buy with your heart.
The final step is, with the help of a realtor, look at properties that meet your requirements. Yes, the market is a little frenzied at the moment, but remember, if your perfect property is sold to someone else, the next perfect property will soon appear.

When you do finally buy, chances are, you’ll buy with your heart. My sister Noona moved to London some years back and after settling in, decided to buy. Her list was fairly lengthy, one of the key elements was being able to walk to work. In a market similar to what we face now, she found a property that met most of her requirements. In the end though, she bought with heart, mostly because of the view from the balcony.

The decision which home to buy is a tricky thing, it should be made with your head and heart. Deciding, while balancing what you think and feel, really is rocket science.

I know that this may seem to be an oversimplification but really, the thing that complicates the process is your own emotions – all of the stress that comes along with making a life change can make the process challenging.

By Jonathan Barlow

27 Oct

TIME TO LOCK IN A VARIABLE RATE MORTGAGE?

General

Posted by: Mike Hattim

Approximately 32 per cent of Canadians are in a variable rate mortgage, which with rates effectively declining steadily for the better part of the last ten years has worked well.

Recent increases triggers questions and concerns, and these questions and concerns are best expressed verbally with a direct call to your independent mortgage expert – not directly with the lender. There are nuances you may not think to consider before you lock in, and that almost certainly will not be primary topics for your lender.

Over the last several years there have been headlines warning us of impending doom with both house price implosion, and interest rate explosion, very little of which has come to fruition other than in a very few localized spots and for short periods of time thus far.

Before accepting what a lender may offer as a lock in rate, especially if you are considering freeing up cash for such things as renovations, travel or putting towards your children’s education, it is best to have your mortgage agent review all your options.

And even if you simply wanted to lock in the existing balance, again the conversation is crucial to have with the right person, as one of the key topics should be prepayment penalties.

In many fixed rate mortgage, the penalty can be quite substantial even when you aren’t very far into your mortgage term. People often assume the penalty for breaking a mortgage amounts to three months’ interest payments, which in the case of 90% of variable rate mortgages is correct. However, in a fixed rate mortgage, the penalty is the greater of three months’ interest or the interest rate differential (IRD).

The ‘IRD’ calculation is a byzantine formula. One designed by people working specifically in the best interests of shareholders, not the best interests of the client (you). The difference in penalties from a variable to a fixed rate product can be as much as a 900 per cent increase.

The massive penalties are designed for banks to recuperate any losses incurred by clients (you) breaking and renegotiating the mortgage at a lower rate. And so locking into a fixed rate product without careful planning can mean significant downside.

Keep in mind that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, things like opting for a “cash back” mortgage can influence penalties even more to the negative, with a claw-back of that cash received way back when.

Another consideration is that certain lenders, and thus certain clients, have ‘fixed payment’ variable rate mortgages. Which means that the payment may at this point be artificially low, and locking into a fixed rate may trigger a more significant increase in the payment than expected.

There is no generally ‘correct’ answer to the question of locking in, the type of variable rate mortgage you hold and the potential changes coming up in your life are all important considerations. There is only a ‘specific-to-you’ answer, and even then – it is a decision made with the best information at hand at the time that it is made. Having a detailed conversation with the right people is crucial.

It should also be said that a poll of 33 economists just before the recent Bank of Canada rate increase had 27 advising against another increase. This would suggest that things may have moved too fast too soon as it is, and we may see another period of zero movement. The last time the Bank of Canada pushed the rate to the current level it sat at this level for nearly five full years.

Life is variable, perhaps your mortgage should be too.

As always, if you have questions about locking in your variable mortgage, or breaking your mortgage to secure a lower rate, or any general mortgage questions, contact a Dominion Lending Centres mortgage specialist.

By Tracy Valko

26 Oct

PAYMENT FREQUENCY, DOES IT REALLY MAKE A DIFFERENCE?

General

Posted by: Mike Hattim

It has been said that there are two certainties in life; death and taxes. Well, as it relates to your mortgage, the single certainty is that you will pay back what you borrowed, plus interest. However, how you make your mortgage payments, the payment frequency, is somewhat up to you! The following is a look at the different types of payment frequencies and how they will impact you and your bottom line.

Here are the six main payment frequency types:

Monthly payments – 12 payments per year
Semi-Monthly payments – 24 payments per year
Bi-weekly payments – 26 payments per year
Weekly payments – 52 payments per year
Accelerated bi-weekly payments – 26 payments per year
Accelerated weekly payments – 52 payments per year
Options one through four are designed to match your payment frequency with your employer. So if you get paid monthly, it makes sense to arrange your mortgage payments to come out a few days after payday. If you’re paid every second Friday, it might make sense to have your mortgage payments match your payday! These are lifestyle choices, and will of course pay down your mortgage as agreed in your mortgage contract, and will run the full length of your amortization.
However, options five and six have that word accelerated attached… and they do just that, they accelerate how fast you are able to pay down your mortgage. Here’s how that works.
With the accelerated bi-weekly payment frequency, you make 26 payments in the year, but instead of making the total annual payment divided by 26 payments, you divide the total annual payment by 24 payments (as if the payments were being set as semi-monthly) and you make 26 payments at the higher amount.

So let’s say your monthly payment is $2,000.
Bi-weekly payment : $2,000 x 12 / 26 = $923.07
Accelerated bi-weekly payment $2,000 x 12 / 24 = $1,000

You see, by making the accelerated bi-weekly payments, it’s like you’re actually making two extra payments each year. It’s these extra payments that add up and reduce your mortgage principal, which then saves you interest on the total life of your mortgage.
The payments for accelerated weekly work the same way, it’s just that you’d be making 52 payments a year instead of 26.
Essentially by choosing an accelerated option for your payment frequency, you are lowering the overall cost of borrowing, and making small extra payments as part of your regular cash flow.
Now, It’s hard to nail down exactly how much interest you would save over the course of a 25 year amortization, because your total mortgage is broken up into terms with different interest rates along the way. However, given todays rates, an accelerated bi-weekly payment schedule could reduce your amortization by up to three and a half years.
If you’d like to have a look at some of the mortgage numbers as they relate to you, please don’t hesitate to contact a Dominion Lending Centres mortgage specialist who would love to work with you and help you find the mortgage (and the mortgage payment frequency) that best suits your needs.

By Michael Hallett

25 Oct

DON’T ‘FIX’ IT IF IT ISN’T BROKEN

General

Posted by: Mike Hattim

By now the media, along with multiple mortgage brokers’ social media feeds, have likely let you know that more changes to your ability to get a mortgage are arriving soon. But so what? Should you care?

SHORT VERSION; Probably Not.

LONG VERSION; The five ’W’’s follow to help answer the above questions and more;

Who is affected?

Nobody simply renewing an existing mortgage. No changes for you.
Nobody buying with less than a 20% down payment. No changes for you.

Group 1 – Current homeowners with more than 20% equity who want to access that equity.

Mind you we are still talking specifically about people wanting to borrow more than 80% of what they currently qualify for. This is less than 10% of my own clients.
And even then, often there will still be a way; co-signors, alternative lenders, etc.

Group 2 – Buyers with 20%+ down payment who specifically planned on borrowing more than 80% of what the currently qualify for.

What does this mean for the market? Is meltdown imminent?

Um. No.

Where?

These changes are unlikely to have a significant impact on the Vancouver or Toronto markets due primarily to higher than average household incomes and higher than average net worth of our parents if they live locally.

In small town Canada where average household incomes and average net worth numbers are lower, the impact of these changes could in fact be much more pronounced. Rather than a slight dip in specific price brackets and specific property types as might be seen in the GVA (Greater Vancouver Area), one might expect as much as a 10% drop in values in smaller communities.

When?

Jan 1, 2018***

Who picks these dates?

People who believe that mortgage brokers, lenders, and underwriters don’t deserve and sort of holiday break at all.

The changes themselves are poorly thought out as it is. But the date of implementation appears to have been generated by the coldest, loneliest, most robotic person in government today.

Why not Dec 15? Or why not Feb 1?

Seriously? Jan 1?

***If you believe these changes may affect you take action well before Dec 1, 2017.
Lenders will be implementing the new rules early, they always do.

Why did the Government make more changes?

Because they can.

For one reason only. OSFI aka the ‘Office of the Superintendent of Financial Institutions’ has a singular mandate.

It’s not to calm prices, it’s not to protect consumers from themselves.

OSFI’s mandate is purely ‘to protect the stability of the CDN banking system’

Period.
The end.

It is not about you, me, consumer debt, bidding wars, subject free offers, runaway property prices, etc. No, it’s all about protecting the banks.

Conclusion

We are at a point where for ten years running the government has made significant changes to the mortgage lending market every single year.

What’s happened to prices pretty much every year for ten years running?

What’s happened to market activity pretty much every year for ten years running?

At this point it feels a bit like we have an impatient child smashing their toy against the ground because it’s not working to their liking.

It was/is actually working fine, but after the tenth hit maybe it may well start to falter, perhaps government should have paused after the ninth hit and seen if things were falling into place (they are), but no – here we go again.

I’d like to say hopefully they are not winding up for yet another hit. However, sadly, all indications from inside the machine indicate that they are in fact winding up for yet another hit. More on that one if and when it happens.

If you are a buyer in the 500K – 1M$ zone watch for some opportunities as that may be where things soften slightly.

Otherwise, business as usual.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

By Dustan Woodhouse

25 Oct

HELPING CHILDREN WITH A DOWN PAYMENT

General

Posted by: Mike Hattim

Although home prices in Toronto and Vancouver seem to have stabilized recently, they are still at historical levels.

The average home price in these two major Canadian cities are still well over $1 Million. Unsurprisingly, first-time homebuyers are finding it increasingly difficult to get onto the “property ladder”. It is now harder than ever for first-time homebuyers to own a home; so what are they to do? Studies have shown that more and more millennials are turning to the bank of mom and dad for help with their down payments.

According to the latest statistics from Mortgage Professionals Canada, down payment gifts from parents have increased significantly in the last 16 years, going from 7% in 2000 to 15% for homes purchased between 2014-2016. The average gift amount has skyrocketed as well. Industry experts have seen many down payments in the six-figure range – $100,000 to $200,000. The trend is expected to continue, as 2017 is predicted to be “the most difficult year for a first-time homebuyer in the last [decade]”, according to James Laird, co-founder of RateHub, a mortgage rate comparison website.

How can you help your children climb the property ladder?
With soaring property prices, you may be asking about your options to help your children break into the housing market. One way is by getting a reverse mortgage on your home. The CHIP Reverse Mortgage from HomEquity Bank has seen a growing number of senior Canadians over the years access their home equity in order to give a financial gift to their family members to help them with big purchases such as a down payment for a house. “We definitely see a growing trend of this at HomEquity Bank. We get a large number of clients who would take out $100,000-$200,000 in a reverse mortgage, they have the benefit of not having to make payments, and they give that lump sum of money to their kids to help them get started in the real estate market.” says Steve Ranson, President and CEO, HomEquity Bank.

How does it work?
A reverse mortgage is a loan secured against the value of your home. It allows you to unlock up to 55% of the value of your home without having to sell or move. The money you receive is tax-free and you are not required to make any regular mortgage payments until you move, sell or pass away.

Why should you give an early inheritance as a down payment now?
Life Expectancy – According to Statistics Canada, for a 65-year old couple there is a one-in-two chance that one of them will reach the age of 92. Do your children really need an inheritance when they are in their mid-to-late 60’s?
Create memories now – After you are gone, you will have missed out on seeing your children build a family in their new home. Giving a down payment now will enable you to create lasting memories while your health allows you to.

Find out more about this incredible opportunity to use a reverse mortgage to give the gift of a down payment to your loved ones today. If you’re 55 years or older and want to learn more about your financial options, including a reverse mortgage, talk to your Dominion Lending Centre mortgage specialist today.

By Joe Heale

20 Oct

NEW MORTGAGE CHANGES DECODED

General

Posted by: Mike Hattim

This week, OSFI (Office of the Superintendent of Financial Institutions) announced that effective January 1, 2018 the new Residential Mortgage Underwriting Practices and Procedures (Guidelines B-20) will be applied to all Federally Regulated Lenders. Note that this currently does not apply to Provincially Regulated Lenders (Credit Unions) but it is possible they will abide by and follow these guidelines when they are placed in to effect on January 1, 2018.

The changes to the guidelines are focused on
• the minimum qualifying rate for uninsured mortgages
• expectations around loan-to-value (LTV) frameworks and limits
• restrictions to transactions designed to work around those LTV limits.

What the above means in layman’s terms is the following:

OSFI STRESS TESTING WILL APPLY TO ALL CONVENTIONAL MORTGAGES

The new guidelines will require that all conventional mortgages (those with a down payment higher than 20%) will have to undergo stress testing. Stress testing means that the borrower would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada (currently at 4.89%) or the contractual mortgage rate +2% (5 year fixed at 3.19% +2%=5.19% qualifying rate).

These changes effectively mean that an uninsured mortgage is now qualified with stricter guidelines than an insured mortgage with less than 20% down payment. The implications of this can be felt by both those purchasing a home and by those who are refinancing their mortgage. Let’s look at what the effect will be for both scenarios:

PURCHASING A NEW HOME
When purchasing a new home with these new guidelines, borrowing power is also restricted. Using the scenario of a dual income family making a combined annual income of $85,000 the borrowing amount would be:

Current Lending Guidelines

Qualifying at a rate of 3.34% with a 25-year amortization and the combined income of $85,000 annually, the couple would be able to purchase a home at $560,000

New lending Guidelines

Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization and the combined annual income of $85,000 you would be able to purchase a home of $455,000.

OUTCOME: This gives a reduced borrowing amount of $105,000…Again a much lower amount and lessens the borrowing power significantly.

REFINANCING A MORTGAGE

A dual-income family with a combined annual income of $85,000.00. The current value of their home is $700,000. They have a remaining mortgage balance of $415,000 and lenders will refinance to a maximum of 80% LTV.
The maximum amount available is: $560,000 minus the existing mortgage gives you $145, 0000 available in the equity of the home, provided you qualify to borrow it.

Current Lending Requirements
Qualifying at a rate of 3.34 with a 25-year amortization, and a combined annual income of $85,000 you are able to borrow $560,000. If you reduce your existing mortgage of $415,000 this means you could qualify to access the full $145,000 available in the equity of your home.

New Lending Requirements
Qualifying at a rate of 5.34% (contract mortgage rate +2%) with a 25-year amortization, combined with the annual income of $85,000 and you would be able to borrow $455,000. If you reduce your existing mortgage of $415,000 this means that of the $145,000 available in the equity of your home you would only qualify to access $40,000 of it.

OUTCOME: That gives us a reduced borrowing power of $105,000. A significant decrease and one that greatly effects the refinancing of a mortgage.

CHANGES AND RESTRICTIONS TO LOAN TO VALUE FRAMEWORKS (NO MORTGAGE BUNDLING)

Mortgage Bundling is when primary mortgage providers team up with an alternative lender to provide a second loan. Doing this allowed for borrowers to circumvent LTV (loan to value) limits.
Under the new guidelines bundled mortgages will no longer be allowed with federally regulated financial institutions. Bundled mortgages will still be an option, but they will be restricted to brokers finding private lenders to bundle behind the first mortgage with the alternate lender. With the broker now finding the private lender will come increased rates and lender fees.
As an example, we will compare the following:
A dual income family that makes a combined annual income of $85,000 wants to purchase a new home for $560,000. The lender is requiring a LTV of 80% (20% down payment of $112,000.00). The borrowers (our dual income family) only have 10% down payment of $56,000.. This means they will require alternate lending of 10% ($56,000) to meet the LTV of 20%.

Current Lending Guidelines
The alternate lender provides a second mortgage of $56,000 at approximately 4-6% and a lender fee of up to 1.25%.

New Lending Guidelines
A private lender must be used for the second mortgage of $56,000. This lender is going to charge fees up to 12% plus a lenders fee of up to 6%

OUTCOME: The interest rates and lender fees are significantly higher under the new guidelines, making it more expensive for this dual income family.

These changes are significant and they will have different implications for different people. Whether you are refinancing, purchasing or currently have a bundled mortgage, these changes could potentially impact you. We advise that if you do have any questions, concerns or want to know more that you contact a Dominion Lending Centres mortgage specialist. They can advise on the best course of action for your unique situation and can help guide you through this next round of mortgage changes.

By Geoff Lee

19 Oct

SELF-EMPLOYED? HERE’S WHAT YOU NEED TO KNOW ABOUT MORTGAGES

General

Posted by: Mike Hattim

Why, why, why it is so challenging for entrepreneurs to obtain a mortgage in Canada?
If you’re among the 2.7 million Canadians who are self-employed, regrettably your income is not as easy to document as someone who’s traditionally employed.

Since 2008, mortgage regulations in Canada have made it more challenging for those who work for themselves to qualify for a mortgage due to tighter restrictions on “stated income” loans. In 2012, Canada’s Office of the Superintendent of Financial Institutions (OSFI) introduced Guideline B-20, which requires federally regulated banks to evaluate applications for residential mortgages and home equity lines of credit with more scrutiny. These rulings made it more challenging for the self-employed to prove income.

Here’s what Self-Employed home buyers need to know:

1. Most self-employed are motivated to decrease their earnings to avoid paying tax through legitimate expenses and personal deductions.
-Therefore, much of one’s self-employed income does not show up on paper.

2. I’m sorry… but you can’t have your cake and eat it too! If you choose to write off as much of your income as legally possible to avoid paying taxes, claiming low take-home pay, you will end up paying a higher interest rate on your mortgage.
– i.e. home buyer is a tradesperson, they earn $70,000/year and legitimately write off their business expenses to $40,000/year on Line 150 of their tax return. Lenders use income from Line 150… not gross income to determine affordability.
– Some lenders allow you to “gross up” your declared taxable income (as opposed to stated income) by adding up to 15%.
– i.e. if your declared income on your Notice of Assessment (NOA) is $40,000, the lender could add 15% for a total of $46,000. In most cases this doesn’t really help the business owner, as their income is still too low to qualify for the mortgage they want.

3. The new mortgage rules mean the assessment of a self-employed applicant’s income has become far more rigorous. Lenders now analyze the average income for the industry a self-employed candidate works in, and study the person’s employment history and earnings in the field. Their stated income should be reasonable, based on:
– industry sector
– type of business
– length of time the operation has been in business

4. Work with professionals. You need to hire a qualified book keeper and a Chartered Professional Accountant (CPA). Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.
– You need to keep all your financial affairs up to date. That means getting the accountant prepared financials, filing your annual tax returns and most importantly paying your taxes. Government always gets first dibs on any money. Lenders won’t be interested in you haven’t paid your taxes.
– I recommend having a discussion with your CPA. Let them know that you want to buy a home. Come up with a budget of what income you need to be able to prove on your tax returns.

Suggestion: you could choose to pay more personal income tax this year, to push your line 150 income up and help you qualify for any mortgage transactions you hope to make. Please note: most lenders will want to see 2 years history, to prove consistency in earnings.

5. For self-employed borrowers, being able to document income for the past 2-3 years gives you more lending options. Some of the documents your lender may request include:
– Credit bureau (within 30 days of purchase)
– Personal tax Notice of Assessment (NOA) for the previous two to three years.
– Proof that you have paid HST and/or GST in full.
– Financial statements for your business prepared by a Chartered Professional Accountant (CPA).
– Contracts showing your expected revenue for the coming years (if applicable).
– Copies of your Article of Incorporation (if applicable).
– Proof that you are a principal owner in the business.
– Business or GST license or Article of Incorporation

6. If you have less than 20% down payment, Genworth is the only option of the 3 mortgage default insurers that still has a stated income program.

Self-employed home buyers, who can document proof of income, can generally access the same mortgage products and rates as traditional borrowers.

Tips for self-employed applying for a mortgage to ensure the process goes smoothly:

1. Get your finances in order. Pay down your debt!!
– Every $400/month in loan payments lowers your mortgage eligibility by $100,000
– Every $12,000 in credit card debt lowers your mortgage eligibility by $100,000
– Do you see a theme here? Pay down your debt! Resist buying/leasing a new vehicle or taking on any additional debt prior to buying your home

2. 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada
– Debt-service ratios are a major factor in a loan-approval assessment based on your provable income (Line 150 – what you paid taxes on)
– Maintain good credit. Solving the Puzzle – 5 factors used in determining your Credit Score
– Consider a larger down-payment.
– If you run into difficulty qualifying on your own, consider having someone co-sign for your mortgage. Would a Co-Signer Enable You to Qualify for a Mortgage?

3. Have two to three years’ worth of your self-employed supporting documentation available so your mortgage broker can work with you to set up your Mortgage Preapproval.

4. Be consistent and show stability. Lenders prefer self-employed borrowers who work in a business that’s established and have expertise in that field.

What happens if the banks still don’t want you for a conventional mortgage?

Many high net worth business owners with low stated incomes turn to private mortgage lenders for financing, since they can’t prove their income.
It is difficult to navigate which lenders specialize in self-employed mortgages. Using a mortgage broker has obvious advantages, since mortgage brokers have access to multiple lenders and have a broad knowledge of the mortgage market.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

By Kelly Hudson

18 Oct

CREDIT RATING AND DEBT SERVICING A MORTGAGE

General

Posted by: Mike Hattim

It is great feeling buying your first home, but for most of us the first step is preparing to get a mortgage.
Your credit rating and cash flow are based on a minimum of a two-year history.
As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
Your credit is made up of many things that the lenders will look at.

Character, it is determined by:
• Paying your bills on time.
• No Delinquent accounts
• Available credit – Are you using all or most of your available credit? That is not a good thing. You are better off to increase your credit limit than to use more than 70% of your limit each month. If you need to increase your score faster use less than 30% of your credit limit, and if you need to use more, pay your credit cards off early so you do not go above 30% of your credit limit.
• Your total out standing debt is considered.

Capacity: this is your ability to pay back the loan. Capacity also covers cash flow vs debt. Your employment history. How long have you been with your current employer, are you self employed, for how long? Capacity is not what you think you can afford, it is what the lender thinks you can afford based of the debt service ratio.

Capital: how much have you saved? How much do you have for a down payment and where does it come from?

Collateral: Lenders consider the value of the property and other assets as they want to see a positive net worth. If you have a negative net worth you may not be able to get a mortgage.

Not having one of these areas in order could prevent you from getting a mortgage.
Contact you Dominion Lending Centres mortgage specialist for a free review of where you stand.

By Kevin Bay

17 Oct

Overview of changes effective January 1, 2018

General

Posted by: Mike Hattim

A new minimum qualifying rate (stress test) for uninsured mortgages will be set

The minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the BoC or the contractual mortgage rate +2%.

Lenders will be required to enhance their LTV measurement and limits to ensure risk responsiveness

Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.

Restrictions will be placed on certain lending arrangements that are designed, or appear designed to circumvent LTV limits

A federally regulated financial institution is prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

17 Oct

THE IMPACT OF MORTGAGE RULE CHANGES

General

Posted by: Mike Hattim

The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.

Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.

The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.

But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.

The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?

The latest round of rule changes are rumoured to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.

By Kristin Woolard