New Mortgage Rules will shake up the lending market
By Roy Cocciollo
Last month’s blog post helped our clients prepare for the 3 new mortgage rule changes that officially start January 1, 2018.
In case you missed it, Paul Taylor (President and CEO of Mortgage Professionals Canada) joined us on Global News Radio, 640 Toronto in October. Watch the video at the bottom of this blog for highlights.
Now let’s talk about how these new mortgage rules will shake up the lending market in Canada and have a significant impact of home owners and buyers:
1. The new rules are basically a two-point rate hike
Uninsured borrowers can qualify for a mortgage today at 5 year fixed rates as low as 2.94%. In a few months that hurdle will soar to almost 5%. This means you’ll need 20% more income to get the same old bank mortgage that you could get today. The result? Borrowers affected by these new rules will be forced to delay buying, pay higher rates, or find a co-borrower to qualify for a mortgage.
2. An increase in non-prime borrowing costs
Home buyers with above-average debt to income ratios will resort to much higher-cost lenders who allow more flexible debt ratio limits. The shift to expensive non-prime lenders could boost mortgage carrying costs and overburden many higher-risk borrowers, exacerbating debt and default risk in the non-prime space. Plus, many home buyers will choose longer amortizations and take longer to pay down their mortgage.
3. Non-prime lenders will also become pickier
Borrowers that no longer qualify at banks will seek alternatives. If you have a higher debt load, weak credit and/or less provable income, you may be subject to the highest rates. Work with a Mortgage Broker and know your options before your sign that mortgage document.
4. Shift to Provincially regulated lenders
Many credit unions will still let you get a mortgage based on your actual (contract) rate, instead of the much higher stress-test rate.
“The new rules will likely also push some buyers toward provincially-regulated mortgage lenders, such as credit unions or private lenders, which are not affected by the OSFI changes.”
Roy Cocciollo, Broker/Owner, YourMortgageYourWay.ca
5. Trapped Mortgage renewals
If on renewal you stay with your existing lender, then you don’t have to pass the stress test again. As many as one in six people renewing their mortgage could be trapped at their existing bank (with subpar renewal rates) because they can’t pass the stress test at another lender. According to Roy, “these changes are negatively impacting the borrower’s ability to competitively shop around for the best rate when renegotiating.” If you’re thinking about refinancing, now is the time to have a Mortgage Broker on your team.
If a first-time homebuyer doesn’t pass the new stress test, they have 4 options:
- Put down more money on their down payment to pass the stress test
- Decide not to purchase the home
- Add a co-signer onto the loan that has income as well
- Buy a home of lesser value to ensure they meet the new stress test requirements
And if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting.
Benefits of a preapproval include:
- Find out what your clients can afford to buy so you can streamline the house hunt
- Lock in rates for 90-120 days
- Check credit and clear up any issues
- Let the clients know what to expect from the mortgage process
Pre-approve today. It’s a quick online application followed by a phone consultation. Calculate the impact of the mortgage stress test on your home affordability.
If you have any questions, we’re here to help! Give us a call at 416-640-0930.