Have you heard? As of January 1st 2018 there will be three new mortgage rules implemented nationally. This can mean big changes for those who currently have or are planning to have a mortgage soon. Mortgages can be confusing, especially for first time home buyers, but these new changes are important to understand. That’s why I have listed and explained them below – take a look and see why mortgages don’t have to be tough to understand. You can also view and download these new rules here.
Change 1: A qualifying rate “stress test” will be applied to all non-insured mortgages
If you have a 20% or greater down payment, you are a non-insured mortgage consumer. This new change affects you because you now have to qualify for a mortgage using a minimum qualifying rate. Testing if you meet the qualifying rate or not is usually referred to as a “stress test”. This rate is either the five year benchmark rate by the Bank of Canada or the lender contractual mortgage rate plus an additional 2%. The greater of the two is what will be used as a qualifying rate. If you have an insured mortgage, you will be using the Bank of Canada rate to qualify and will not have the option of using another rate. For uninsured mortgages, the changes will be noticeable as it may affect the amount in which the homebuyer will be able to qualify. The previous rate to qualify at was the rate offered by the lender, but now this rate can be much higher. The good news is you still have the option to refinance up to 80% of the value of your property, and you can do so by passing the same qualifying stress test (the greater of the Bank of Canada rate or the lender rate plus 2%).
Change 2: Lenders are required to enhance their loan to value measurement and limits to help risk responsiveness
Your loan to value measurement is the size of your loan compared to the value of the property that you are securing the loan with. Mortgage lenders (except private lenders or credit unions) must now adhere to new standards of loan to value ratio limits, which will reflect the risk of the current housing and economic markets. This policy has not been fully disclosed yet, but it is clear that these standards will fluctuate over time and by area. Likely, in higher priced markets more risk management will be used, and vice versa. This policy has already been partially developed, and since many lenders have already been following it for almost a year it may not cause too much hassle.
Change 3: Restrictions are going to be placed on certain lending arrangements that are designed (intentionally or unintentionally) to avoid loan to value limits
This new rule is designed to stop lenders from working with other lenders to offer mortgages and/or other lending products in a way that will circumvent the maximum loan to value ratio or other standards put in place. These requirements change depending on the area, but lenders will no longer be allowed to bundle lending products. Using multiple lenders to reach a loan amount that was not approved in the first place was previously allowed, and while this change may make some people upset it may just help with risk management.
So these are the three new mortgages rule changes that will be starting next year. Now that the mortgage game is changing, it is important to rely on your local mortgage broker. Still unsure about what these new changes mean for you? If you are in the GTA and need mortgage advice, call me today for more information or questions on these new rules.