Immediately following the announcement from the Federal Government earlier this month related to new mortgage market rules, many lending programs were placed on an indefinite hold as lenders assess the impact of the new rules.
The actual number of borrowers – whether those buying a home or refinancing a mortgage – that will be affected by the changes could be much greater than initially estimated by the government. Overall. there will be far fewer options and less competition, which translates to several negative consequences for the consumer — Approvals will be much more difficult to obtain. Mortgage rates will increase. Insurance rates will increase.
The first round of changes take effect on October 17, at which point, when applying for a mortgage, you will have to prove you can afford a higher payment. Lenders must use the Bank of Canada benchmark rate — which today is 4.64% and nearly double today’s typical 5 year fixed rate – to calculate your debt service ratios and qualify you for a mortgage. Many lending programs use this method of qualifying already and its now going to be used across the board – it helps lenders ensure that a borrower can afford a higher payment when rates rise.
The 2nd round of changes come into effect on November 30, 2017, Mortgage loans that lenders insure must meet new eligibility criteria – Maximum amortization of 25 years, maximum purchase price must be below $1.000,000, credit scores need to be above 600 and more rigorous requirements for non-owner occupied investment properties.
The big banks will do well as a result of the changes, along with any lender that does not need to insure mortgages in order to sell them to investors (for example, Credit Unions). They will see significantly higher profits. Monoline lenders will have a more difficult time competing. (These are lenders that offer mortgages or lines of credit only, they take out insurance on all of their mortgages, they don’t take deposits or have a suite of other products).
Overall, this results in a less competitive mortgage market.
Now, more than ever, Canadians should consult with Mortgage Brokers for their borrowing needs. We have access to lenders that do not insure all of their mortgages and can guide you through the differences across lender programs, help you qualify and work with you to choose the best and most suitable option for you.
If you are thinking of refinancing or purchasing and would like to discuss the options that are available to you — or if you would like work with me on a cashflow strategy so that we can prepare for future borrowing needs, please reach out –
Lori Caton, Mortgage Broker
I work with clients across Canada, based in Oakville, Ontario with a focus on the GTA / Golden Horseshoe Area.