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!

Conclusion

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.

Jenni MacDonald

Maximum Amortization Changes:

The second major change for mortgages in Canada is the maximum amortization period that a home owner can get.  Before 2008, a property owner could get a 40 year amortization.  In 2008, that changed from 40 years to 35 years.  In 2011, from 35 years to 30 years and recently, in 2012, the maximum amortization for most mortgages changed from 30 years to 25 years.  Some longer amortizations were available from some lenders with over 20% equity in your home but the new announcement limits that possibility.  If lenders decide to continue some amortizations over 25 years, a higher interest rate may be charged.

The amortization is the number of years that the total mortgage can be spread over.  The longer the amortization, the longer it takes to pay off your mortgage but the smaller your mortgage payments.  For instance, on a $200,000 mortgage amortized over 40 years (at an interest rate of 3%), the payments would be $713.83 monthly.  The same mortgage amortized over 25 years is $946.49.  That’s a monthly difference of $232.66.  This could be the difference between an approval or a decline.

The significance of this change is not only the amount of mortgage payment that you use to qualify your initial purchase but also influences your refinance options in the future.  If you want to refinance your home and you currently have over 25 years left on your mortgage, you have no choice but to use the new maximum refinance amortization of 25 years or less.  This may limit the amount of mortgage you can qualify for in order to pull out equity from your home.

Down Paymen

ts Change:

In 2008, the minimum down payment allowed on the purchase of a property officially changed from 0% to 5%.  In reality, many lenders continued to offer options like 5% cashback that a buyer could access for their down payment.  Now, borrowers can no longer use the cashback option for down payments.  There are a few lenders that allow borrowed down payments but they are few and the qualification requirements are stringent.   The best options for down payment are saving from your own resources or a gift from an immediate family member.

If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if this change will affect your ability to get the mortgage you are looking for.

Jenni MacDonald

613-551-0639

Mortgage Broker

Dominion Lending Centres The Mortgage Source

November Mortgage Rule Changes

The result of the November, 2016 change is that many non-bank lenders have already cancelled the mortgage products available for rental properties and refinances.  The impact for Cornwall borrowers is already significant.  As a small market with a large rental portfolio, Cornwall borrowers looking to get refinance mortgages on their rental properties are limited to major banks.  When rental property owners are approved by the Bank, the changes have made rental mortgage products more risky, so there is now a premium on mortgages for rental properties.

Also, single family home rentals are now not accepted by most lenders.  Self employed clients have fewer choices to obtain a mortgage.  Owner occupied home owners in our area have been forced to use Bank lenders.  Unfortunately, many property owners do not meet the stringent rules of major Banks.  With the loss of the smaller lenders, Banks will not have the competition we have established in the Canadian mortgage market.  Loss of this competition will allow Banks to increase mortgage rates at the cost of the Canadian consumer.

Traditionally, many lenders have been hesitant to lend in Cornwall and with these changes, we have lost even more lending options.   The result I have seen in Cornwall already is that private lender mortgages are needed more than before.  These mortgages are very expensive and should be used as a short term solution.  These changes leave the borrower in these high rate mortgages for longer terms.

Qualifying Rate Change:

On October 17, 2016, the government made the changes to control the housing markets in Vancouver and Toronto but we are all affected by the decision.  Unfortunately for the smaller lenders, big banks can still choose to qualify the mortgage at the contract rate while the smaller lenders do not have the option.  This gives the Banks an unfair advantage.

Basically, until now, when you apply for a 5 year fixed mortgage, your ability to pay for the mortgage was calculated on the actual rate you would pay (around 2.49%).  If the amount of your total debt came in around 44% or less compared to your gross income (depending on your credit score and the lender you were working with), you would likely be approved for the mortgage.  With this change, you will still pay 2.49% interest but in order to qualify how much your mortgage payments will cost you, the payments are calculated at the posted rate (currently 4.64%).  The posted rate has been used to qualify variable rate mortgages, Home Equity Lines of Credit and 1-4 year term mortgages for years.  This change now requires 5 year fixed mortgage terms to be included as well.

That may not seem significant but let’s look at a specific situation:

You want a mortgage of $200,000.  With a 25 year amortization at a 2.49% interest rate for the 5 year term, the payments would be about $894.94.  That amount is added to your other monthly debts and your ratio has to come in under 44% compared to your gross income.  The new rule means, even though in real life you will be paying $894.94 each month for the next 5 years on your mortgage, the application will have to show you will be paying $1,122.96 each month for the next 5 years and still calculate under 44% compared to your gross income.  That’s an extra $228.02 per month added to your total debts.  It can make the difference between an approval or decline if your credit card debts are fairly high.  You may not qualify for the full $200,000 anymore.

If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if this change will affect your ability to get the mortgage you are looking for.

Jenni MacDonald

613-551-0639

Mortgage Broker

Dominion Lending Centres The Mortgage Source

Recent Announcements

With the sudden mortgage changes announcements on Monday, October 5, 2016, came a flood of concerns about the impact of the upcoming changes.  In reality, these are just more major changes in the mortgage landscape in Canada.  While each change on its own is not completely overwhelming; the combined effect of these changes has significantly impacted the possibility of getting a mortgage.  These changes effect home owners in Canada, and Cornwall, in particular.

Changes

The major changes that affected most of Cornwall area property owners in the last 8 years are:

1. October changes to the qualifying rate on a 5 year fixed mortgage from the actual rate (around 2.69%)  to the qualifying posted rate (4.64% at this time) (2016)
2. Maximum amortization changes for an insured mortgage from 40 years to 35 years (2008), from 35 years to 30 years (2011) and from 30 years to 25 years (2012)
3. Minimum down payment changed from 0 to 5% (2008)
4. Changes to documentation and credit score requirements (2008)
5. The maximum refinance percentage changed from 85% to 80% (2012)
6. Qualifying payment amounts changed on unsecured lines of credit and credit cards to 3% of the balance owing instead of required minimum payment amounts on statements (2013)
7. Portfolio (bulk) insurance must now meet the same criteria as those that are high-ratio insured. This change effects obtaining a mortgage for: over 25 year amortization, rental and investment properties, refinances and homes with values greater than $1M.  They can no longer be bulk insured.  The long term effects have yet to be determined but in the Cornwall area alone, there have already been negative results.  (November, 2016)
8. New increased capital requirements to be held in reserved for non-bank lender. (January, 2017)
9.  Increase to CMHC insurance premiums. This is the third increase in three years. (March 17, 2017)
10. “Risk sharing” model for lenders to share in losses of insured mortgage claims. (Proposed)
11. Implementation of regional-based pricing.  (Proposed)

Results

Over the next few weeks, we will go over each of these changes and their effect on your qualification for a mortgage.  In the meantime, there is no need to panic but it may be time to evaluate.  If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if the recent changes will affect your ability to get your mortgage.