Mortgage Industry – Changes to Qualifying
As many of you are aware, Canada’s Minister of Finance implemented 3 major changes to mortgage qualifying that became effective on Monday, April 19th.
This newsletter is dedicated to outlining these changes, and to clarifying any confusion that they may have caused.
Here is a summary of those 3 major changes, as well as some misconceptions:
This refers to re-doing the terms of an existing mortgage.
This is often done to save money by getting a lower rate, or to pull equity out of the property as a source of money to fund a major project such as renovations, paying out debts, purchasing vehicles, etc.
New Guideline – Lenders will now only go to a maximum of 90% of the property’s value for refinances.
Previous Guideline – Lenders used to go to a maximum of 95% of the property’s value for refinances assuming that income and credit were strong.
Misconception #1 – Many buyers are confused, thinking that they now need 10% down to buy property because lenders will only finance a maximum of 90%. This new guideline refers only to refinances, not to purchases.
For those with strong income and credit, a down payment of 5% is still acceptable when purchasing a principal residence.
Misconception #2 – Renewing an existing mortgage is not the same thing as refinancing.
Renewing a mortgage refers to the action you must take when your existing mortgage matures (based on whatever the end of the term date is). For mortgage renewals, each lender has individual, specific guidelines.
2. QUALIFYING RATE:
New Guideline – The posted bank rate will be used to qualify borrowers for any mortgage that is not a 5 year term with a fixed rate.
Previous Guideline – Prior to this change, qualifying for mortgages of varying terms and rate types was based on the lender’s discounted rate.
While the posted bank rate can be found on the Bank of Canada website (http://www.bankofcanada.ca/en/rates/interest-look.html), each lender also has the right to increase this rate to something higher if they so choose.
The higher the qualifying rate, the more challenging it can be for people to obtain financing.
The good news is that qualifying borrowers on a mortgage that is a 5 year term, fixed rate, will still be based on the lowest discounted rates that we Mortgage Brokers have access to.
3. PURCHASING RENTAL PROPERTIES:
New Guideline – Rental purchases now require a minimum down payment of 20%.
Previous Guideline – While rental properties could sometimes be purchased for lesser down payment amounts prior to this change, lenders often ended up insisting on a 20% down payment anyway to minimize their risk.
This guideline now makes it a formality.
I hope this overview of the recent changes to the Mortgage industry has been helpful to you.
I am pleased to offer complimentary consultations for those considering applying for any kind of financing, or who just have general questions.
Ms. Anat Stapleton
Mortgage Broker Extraordinaire