Changes to Mortgage Qualifying
How it Effects You and Your Clients Effective April 19th, 2010!
--Feb. 16, 2010
Good morning
As I am sure you have heard on the news that Jim Flaherty, the Minister of Finance was to announce today some changes to be made to mortgage qualifying. This announcement has now been made and below is a snapshot as well as what it will look like for our mutual clients in the future and how it REALLY impacts us all.
So Jim Flaherty said "Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals. However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."
The Government will therefore adjust the rules for government-backed insured mortgages as follows:
- Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
- Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
- Require a minimum down payment of 20% for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.
"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."
Canada's housing market remains healthy and stable. According to the International Monetary Fund, our housing market is fully supported by sound economic factors, such as low interest rates, rising incomes and a growing population. Moreover, mortgage arrears—overdue mortgage payments—have also remained low.
SO WHAT EXACTLY ARE THE CHANGES……. How will it affect your Ontario Mortgage
QUALIFYING AT A FIVE-YEAR RATE INSTEAD OF 3 YEAR RATE
Current interest rates are at record low levels, which has improved the affordability of housing for Canadians. This change is in order to ensure that Canadians borrow prudently and are able to manage their debt loads when interest rates rise. As you know, lenders and mortgage insurers use two key ratios to assess the ability of the borrower to make payments - Gross Debt Service (GDS) ratio—the ratio of the carrying costs of the home, including the mortgage payment, taxes and heating costs, to the borrower's income and Total Debt Service (TDS) ratio—the ratio of the carrying costs of the home and all other debt payments to the borrower's total income. Currently, the interest rate used to determine the mortgage payment for these calculations is either the rate fixed for the term of the mortgage or, in the case of a variable-rate mortgage and mortgages with terms of less than three years, the three-year fixed rate.
IMPACT FOR YOU AND ME: Right now we have to qualify on the current 3 year rate of around 3.50% so with this change, we simple have to qualify all clients at nearer 4.00% instead. So here is an example :
Purchase Price of $250,000 with 5% Down Payment 35 Year Amortization and clients household income is $45,000
Now: Client can qualify for this mortgage and property
April 19th: Client will need income to qualify of $47,500 OR with income of $45,000 now qualifies for a maximum purchase price of $235,000
LIMIT THE MAXIMUM REFINANCING AMOUNT TO 90% OF THE LOAN-TO-VALUE RATIO INSTEAD OF 95%
Borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95% of the value of the property. The adjustments today will lower the maximum amount of the mortgage loan in a refinancing of a high ratio mortgage loan to 90% of the value of the property.
IMPACT FOR YOU AND ME: This is not a bad move at all and to be honest, we will unlikely see any impact on this change at all.
MINIMUM DOWN PAYMENT OF 20% FOR NON-OWNER-OCCUPIED PROPERTIES
This measure will require a minimum down payment of 20% for non-owner-occupied properties purchased for speculation. Currently, borrowers may purchase a residential property with a 5% payment. Today's change will require a 20% for small (i.e., 1- to 4-unit) non-owner-occupied residential rental properties. Borrowers purchasing owner-occupied residential properties which also include some rental units (e.g., borrowers purchasing a duplex to live in one unit and rent out the other) will still be able to access with a 5% down payment.
IMPACT FOR YOU AND ME: This will certainly effect our clients that wish to purchase rental properties. Although a majority of investors prefer to purchase rental properties with 20% down payment to AVOID paying the higher insurance premiums.. as of April 19th it will be mandatory! So all your investor clients out there should get their offers in PRIOR to April 19th if they only want to put 5% down payment!
EFFECTIVE DATE
These adjustments are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010. So bottomline, any Purchase Agreements signed prior to April 19th although funding after this date, will be able to use the existing guidelines. HOWEVER, be prepared that some lenders will make up their own deadline on this particular issue e.g. deal must FUND or CLOSE within 30 days of April 19th.. this is just my opinion and not official yet but we saw this type of rule put into place back in October 2008 when we saw the last set of changes.
So this is it in a nutshell and feel free to call if you wish to chat about this and/or forward this to your clients.
Please note change of email address to claire@yourmortgageoptions.ca effective immediately
Claire Drage
Mortgage Agent (FSCO License No.: M08007610)
Dominion Lending Centres Home Capital Solutions Inc. (FSCO No.: 10844)
Tel: 905.847.6611
Cell: 905.330.9488
Fax: 1.866.755.3750
Email: claire@yourmortgageoptions.ca
With all the mortgage options out there, is looking at just one.. Your Best Choice? Call me for ALL your Mortgage Options. I help people feel the freedom of planning their own "Mortgage Burning Party"
