On October 3rd 2016 the Canadian Department of Finance announced stricter rules for specific types of mortgage products. This is latest of many rule changes in the past eight years geared towards ….
To see the specific details on the changes got to http://www.fin.gc.ca/n16/data/16-117_2-eng.asp
There have been many recent articles that review and explain these changes. I am not going to do that here. What I am going to do is answer some of the many questions I have been asked by my clients recently.
Why did they do this?
The Department of Finance is concerned that, with almost a decade of extremely low interest rates, Canadians have taken on too much debt. In turn, once the interest rates begin to increase (and they will), DOF fears that many Canadians will not be able to financially adapt to the increases. In order to avoid further issues they have installed a STRESS TEST. Increasing the qualifying rate for the 5 year fixed mortgage and decreasing the maximum amortization for the insured mortgages will make is harder for people to qualify. It will ensure that those who do qualify have the ability to adapt to increasing rates. and knock some right out of home ownership for now.
Some of these changes will also force the lenders to increase their rates. The Department of Finance is using this as a tool to cool the over heated markets in Vancouver and Toronto. Although, in Vancouver this has already been done with the implementation of BC’s 15% foreign buyers tax.
How does it affect me and my current mortgage?
Depending on your current mortgage product it may or may not affect you.
If you have more than 20% equity in your home and your debt to income ratios are low, then this may not affect you at all.
If you have less than 20% equity in your home and your debt to income ratios are on the higher side then you may not have the liberty of shopping the different lenders and their products when it is renewal time. You may have no choice but to remain with your current lender and accept the rate they offer you.
How does it affect me if I want to purchase a home?
If you are currently looking to make a purchase in the residential market and have a pre-approval you need to contact your mortgage agent or bank to ensure you still qualify for your pre approval using the new criteria.
If you do not qualify for a pre approval using the new criteria then you may have some options to help you qualify. Some options may be increasing the down payment amount or using a co-signor. (A co-signor should always seek independent legal advice)
If you have 20% or more for your down payment and enter a purchase agreement prior to November 30th 2016 you may not have to use the new qualifying criteria.
How will it affect the real estate market?
There are many opinions on this. Some believe that it will kill the monoline lenders (Lenders that only deal in mortgage lending not the bank). This will decrease the competition for the big banks and therefore increase rates and decrease homeowners’ options for borrowing. O
Should I refinance now before the changes?
There are so many factors and variables to each homeowners’ mortgage. To answer this question, the best thing to do is to contact me right away. I will review your current situation and inform you of your options. This is time sensitive so email me at email@example.com