Going, going, gone! [New mortgage rules and conventional mortgages]

October 17, 2016 | By | Add a Comment

New mortgage rules and conventional mortgages in Canada | CanadianMortgageCo.com Ingrid Bjel McGaughey Toronto mortgage brokerDown payment of 20% plus?  New mortgage rules that affect you

With all the media hubbub recently, you probably know that the Canadian finance minister announced stringent new mortgage rules on October 3, 2016.   If you are looking to buy a new home or refinance, you maybe be affected, even if you have 20% down or more.  This is considered a “conventional” mortgage.  (If your down payment is less than 20%, your mortgage would be “high ratio”; click here for information that would relate to your situation).

So what’s changed for conventional mortgages?

# 1 – the stress test will apply

Effective November 30th, any mortgages that lenders “back-end” insure, using portfolio insurance, will need to qualify using the new stress test.  That is, regardless of what your actual mortgage rate is, you need to qualify as if your mortgage rate is the bank posted rate – that’s 4.64% currently.

# 2 – the max amortization will be 25 years

Any back-end insured mortgage will have a maximum 25 year amortization.  Up to November 30th, borrowers with a 20% or greater down payment can still obtain a 30 or 35 year amortization. (Note:  some lenders will likely cut off applications being considered under today’s rules a few days early, so don’t wait until the last minute if you’re interested in this!)

# 3 – properties worth more than $1,000,000 won’t qualify

Back-end insurance will be realigned to match high ratio insurance – that is, the maximum property value that can carry an insured mortgage will be $1 million.  (Hello, Toronto real estate market)

# 4 – non-owner-occupied investment properties won’t qualify

Mortgages for property investors have already been affected by mortgage tightening in the last few years.  The current round of mortgage rule changes is no exception.  These mortgages will no longer qualify to be back-end insured.

Which lenders back-end insure their conventional mortgages?

That’s the million dollar question.  Until now, most Canadian mortgage lenders, both banks and non-bank “A” lenders, have used portfolio insurance on at least some of their conventional mortgages.  It makes their investors much more comfortable with lending the money out.  Plus, it’s allowed them to keep the rates lower than they might otherwise have been.  With the changing mortgage rules, both bank and non-bank lenders have had to re-evaluate how they will lend money, and whether they’ll need to increase rates to offset the greater costs.  Unfortunately, it’s Canadian consumers who will absorb these additional costs.  At this time, we don’t know yet how this will play out with specific lenders.

Does this mean I will have trouble getting a mortgage?

Certainly not. The changes will only affect back-end insured mortgages. All Canadian mortgage lenders are re-evaluating their businesses to determine how best to continue to be competitive and profitable.  I have access to a wide range of lenders, which means I can help you navigate the new mortgage rules, and find the best mortgage for your situation.

Will lenders still offer 30 year amortizations?

Yes, they will.  The same goes for mortgages for investment properties. But, if you’re thinking of refinancing or you’re buying imminently, don’t wait to get in touch!

Get the best rate and options possible

After November 30th, you may be looking at paying more for your mortgage.  If you’re borrowing to buy an investment property, are self-employed, or looking at buying a home worth more than $1,000,000, you deserve to continue to have great options and service.  Mortgage brokers like me can help you figure out the best solution for you, both now, and after the new mortgage rules take effect.   Please don’t hesitate to get in touch with me.  I’m happy to help.

Filed in: Canadian Mortgage News, Investment Property, Mortgage Planning, Purchase, Refinance | Tags: , ,

About the Author (Author Profile)

I'm a Toronto Mortgage Broker. My focus is on saving people time and money in financing and re-financing their homes. Am passionate about helping people make informed choices, giving back, and helping to improve financial literacy in Canada.

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