Credit Scores and Documentation Changes:
In 2008, lenders were required to be more diligent proving a borrower’s ability to make mortgage payments. Documentation requirements became almost painful. Clients often lament about the lender wanting everything except their first born. As consumer debt in Canada continues to increase, the government will continue to change lending rules to protect both the lender and the borrower. Credit scores are your only real power when it comes to borrowing. If you aren’t sure how to build your score, please contact me for a free consultation and we can put together a plan to make your credit score solid!
Maximum Refinance Amounts Changes:
In 2012, the maximum loan to value for a refinance changed from 85% to 80% of the value of your home. Lenders were finding that consumers were using their homes as an ATM machine. The concern was that Canada would have a generation of retirees with no equity in their homes and no pensions to pay their debts. This continues to be an area of interest and may undergo changes in the future.
Qualifying Payments Changes on Credit Cards and Lines of Credit:
Probably the most influential change that I have seen is the 2013 decision to change qualifying payment amounts. Lenders now require 3% of the outstanding balance on credit cards and unsecured lines of credit to be added to the total debt to qualify for a mortgage. Prior to this change, you could use the required minimum monthly payment on your credit card or line of credit.
He’s an example…. You have an unsecured line of credit for $30,000. You pay the minimum monthly payment and maybe a little extra when you have the funds. Let’s say $200 per month. When you apply for a mortgage was have to use 3% of the balance owing as your monthly requirement: In this case, $900 per month. That’s an extra $700 per month that gets added to your debts even though, in real life, you are only paying $200!
Each mortgage rule change on its own is not a problem. When we compound all the changes, it’s difficult to navigate the mortgage options available. If you are in the middle of purchasing or refinancing your home, please contact me. We can go over your particular situation to get the mortgage that’s right for you.