Canadian Mortgage Game-Changer

Canadian Mortgage Game Changing Overnight

Bill Morneau, the Minister of Finance, announced changes to insured mortgages on Monday morning that will have a major impact on Canadians.  The government’s attempt at cooling a hot housing market as a result of their lack of regulation where foreign buyers are concerned will now penalize Canadians. The changes don’t only make it far more difficult to obtain a Canadian mortgage as a new home owner but it may take away the ability of Canadians to manage the equity in their homes and to access fair competition upon renewal of their Canadian mortgage.  Vancouver and Toronto are not the only housing markets to consider.  Canada is a big country.

Mortgage Rates Almost Double

Any purchase less than 20% down requires default insurance provided by either CMHC, Genworth or Canada Guarantee.  As of October 17, 2016, any buyer with less than 20% down must qualify at the benchmark rate that the Bank of Canada sets (currently 4.64%).  Today any buyer who takes a 5 year fixed term can qualify at the contract rate (average of 2.44%).  For variable rates and terms less than 5 years, the benchmark rate must be used to qualify.

The Canadian mortgage business is made up of a few players – insurers, non-bank lenders (monolines), banks and local credit unions.  Monoline lenders currently “blanket” insure their mortgages to mitigate risk and attract investors regardless of the amount of equity in the property.  Banks do not have to insure their low ratio mortgages (more than 20% equity).

If monoline lenders continue to blanket insure their mortgages, ALL of their borrowers must qualify at 4.64% at a 25 year amortization.  Also, the way it currently appears is that refinances or rentals will no longer be insured.  That could mean that you can no longer take equity out of your house for a renovation or investment or consolidate that 19% credit card debt that the government continues to ignore.  If they are so worried about the Canadian debt load, why are we still paying 19% on credit cards?  Why is there no proof of credit or income required to qualify for a credit card??

Another Step Towards Bank Monopoly?

WAIT!  – if you want to take equity out of your house or debt consolidate, you can still go to a bank if you want!  If banks monopolize the Canadian mortgage market going forward,  the competition for your business will disappear and the banks will control what you pay.  The bank profits continue to soar while the Canadian consumer debt gets higher.  Where is the balance?

And to top it all off, the biggest players in this decision were not consulted or advised.  Insurers, lenders and brokers all found out at the same time Monday morning and are scrambling to figure out what exactly it all means to their business and their clients.  We are still waiting to find out exactly how the lenders will handle the changes and how exactly how it will affect you.

The Reality of Canadian Mortgages

canadian mortage rules

Qualifying for a Canadian Mortgage in 2016

One of my colleagues wrote a blog last year about the similarities between Beer, Biking and Mortgages.  I found it very entertaining and refreshing as mortgage financing isn’t the most riveting of subjects.

A little humour can be the best medicine in this time of dotting your i’s and crossing your t’s. When people think about applying for mortgage financing it often feels like daunting uncharted territory.  The thought process is something like this.  “I loved the house and I want it…..what do I have to do to get it….FAST!??  Will I qualify??  What is my credit like, hmmmm,  I’ve never checked???”  

I find that even when folks have had a mortgage for years, the same feeling resurfaces when they want to make a change….upsizing, downsizing, money for renovations, debt consolidation.  If the last time they purchased or remortgaged was 5 or 10 years ago, the qualification process was a heck of a lot easier.  Our government has been stringent (and thank goodness they have) in tightening our mortgage rules , making sure that consumers who hold mortgages in our great country actually qualify and are able to repay.  That can mean a little more gray hair before reaching the promise land, AKA money in hand.

“What do you mean I don’t qualify because the lenders now calculate a 3% monthly payment on the balance on a line of credit.  They only make me pay interest only?”

“I only have one collection on my credit bureau and my credit score is over 600….which apparently is the minimum score?”  I can’t get best rates???”

There seems to be a fine line between due diligence with our lenders and empathizing with our client regarding the significant changes that we are experiencing.  I’d like to send all of my clients to see “The Big Short” about the subprime mortgage market in the United States which was up for an Academy Award for Best Picture.  It is mind boggling that it is a true story and that the lack of regulation in the United States created corruption to that level and forced  one of the biggest housing collapses in history.  

Mortgage financing even in today’s world can be simplified even in today’s world.  An expert mortgage broker is always happy to help navigate every step.