New Mortgage Changes: What you Need to Know
New mortgage changes are coming down the pipe, and it can all be a little confusing. Here's what the experts are saying....
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Insured Mortgage / High Ratio Mortgage = Less than 20% down payment
Non Insured Mortgage / Conventional Mortgage = 20% or greater down payment / equity
Bank of Canada Rate = the 5 year fixed posted rate (currently 4.99%)
Contract Rate = the actual rate offered by the lender to the consumer
Benchmark Rate/Qualifying Rate = Stress Test: Bank of Canada Rate OR Contract Rate +2%, whichever is greater
LTV (Loan To Value) = the size of a mortgage compared to the value of the property
securing the loan
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3 new mortgage rule changes starting January 1, 2018:
Change 1: QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES
Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the five-year benchmark rate published by the Bank of Canada OR the lender contractual mortgage rate +2.0%.
How does this affect the mortgage consumer with a down payment of 20% or more?
The biggest impact will be on the amount in which the homebuyer will be able to qualify. Previously, the homebuyer qualified at the rate offered by the lender. Now, the homebuyer must qualify at the benchmark rate which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.
Do I still have the option to refinance my home?
Yes, homebuyers will still have the ability to refinance up to 80% of the value of their property. You will have to pass the same stress test which is the higher of the Bank of Canada Rate (currently 4.99%) OR the rate from the lender plus 2%.
Change 2: LENDERS WILL BE REQUIRED TO ENHANCE THEIR LOAN TO VALUE (LTV) MEASUREMENT AND LIMITS TO ENSURE RISK RESPONSIVENESS
Mortgage lenders (excluding credit unions and private lenders) must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve. We are awaiting more details on this policy from lenders. As we have new information, we will update this document.
Change 3: RESTRICTIONS WILL BE PLACED ON CERTAIN LENDING ARRANGEMENTS THAT ARE DESIGNED, OR APPEAR DESIGNED TO AVOID LTV LIMITS
Mortgage lenders (excluding credit unions and private lenders) are prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law. This is often referred to as “bundling” or “bundle partnership”.
What does this mean?
For example: a consumer applies for 80% LTV mortgage and the lender can only approve 65%. The lender then partners with a second lender for the additional 15%. The original lender then “bundles” the 15% LTV mortgage with the original 65% mortgage to form the complete 80% LTV loan. This will no longer be permitted.
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Questions? Contact us and we will put you in touch with the experts!
Lorraine Mah
RE/MAX River City
780-905-1179
lorrainemah@shaw.ca
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