WINESTONE LAVAL Mortgages, Insurance and Advisory Services: New Mortgage Rules are Coming – we break it down for you here…
WINESTONE LAVAL continues to be committed to providing you, our clients, with timely information that affects your mortgage strategy and overall financial well-being.
New mortgage rules were announced and will take effect on January 1st, 2018. There are a number of very important changes that you must be aware of! We are already getting a number of calls and emails asking for these rules to be explained, so we have put together this newsletter specifically for you, leveraging our knowledge and expertise. Please share this with anyone who may find it useful. These changes are complex – now is the time to connect with us about your mortgage and financial plans as these new rules WILL affect your ability to qualify for purchases and refinances.
It is imperative that you connect with us at your earliest convenience to ensure you have the best mortgage strategy to move forward at this time with the impending rule changes. This will affect home purchases as well as refinances and renewals, so if you are planning any of these important decisions in the near future, now is the time to look at doing so.
WINESTONE LAVAL continues to update our clients as new information arises on the regulatory changes announced by the Office of Superintendent of Financial Institutions (OSFI) on October 17th, 2017.
MORTGAGE TERMS YOU NEED TO KNOW:
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 at 4.89%)
Contract Rate = the actual rate offered by the lender/FI 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
OSFI has implemented three (3) new mortgage rule changes starting January 1st, 2018:
CHANGE 1: QUALIFYING RATE STRESS TEST TO ALL NON INSURED MORTGAGES
Non-insured mortgage consumers (buyers or current owners with a 20% or greater down payment/equity) 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 at 4.89%) OR the rate from the lender plus 2%. This applies to all terms, fixed and variable rates.
What this means: If income stays the same and the qualifying rate is now higher, the borrower may qualify for a lower mortgage amount.
STRESS TEST SUMMARY
Homebuyers/owners qualify for a mortgage using the benchmark rate, which is the Bank of Canada rate (currently 4.89%) OR the lender rate +2%, whichever is greater. INSURED MORTGAGES
You must qualify for a mortgage at the Bank of Canada rate (currently at 4.89%).
*The chart above is based on 35% GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization. For example only. Subject to change without prior notice. OAC. E&OE.
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 at 4.89%) 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. Note: We are awaiting more details on this policy from lenders. As we have new information, we will update you.
What does this mean?
OSFI directs lenders (excluding credit unions and private lenders) to have internal risk management protocols in higher priced markets (sometimes called “hot real estate markets”, like Toronto and Vancouver). This is a continuation of a policy already in place. Many mortgage lenders have been following the principles of the policy for the last 10 to 12 months.
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 is no longer permitted.
HOW CAN WINESTONE LAVAL HELP?
Now, more than ever, new homebuyers and existing homeowners are going to rely on professional and ethical Mortgage Advisors for their guidance and expertise in navigating through these regulatory changes, shifting market conditions and uncertainty. By leveraging the Credit Union Mortgage Program, this increases our ability to help you – qualify for MORE and reduce your cost.