The new mortgage rules that the Federal Government has imposed take effect today. Here are the new rules and how they may affect you:
1. Qualifying rates have changed for variable rates and fixed rates with terms of 1-4 years for mortgages that are insured via CMHC and other insurers. This means for purchasers that are putting less than 20% as a down payment. This new rule does NOT apply if you are placing 20% as a down payment or more.
In the past, we used a 3 year rate of approximately 3.7% (as of last week) to qualify a client on a variable rate (current best 5 year variable is prime -.50% or 1.75%). The qualifying rate has been changed to the bank of Canada 5 year fixed rate which is 5.85% as of today. That is a huge difference of 2.15% that you have to additionally qualify for. The same 5.85% is used for any fixed rate term below the 5 year fixed rate – so 1-4 years. In the past we used the best rate to qualify.
What does this mean for you? You will need 20-25% more income to qualify for these terms today as opposed to last week if you are putting less that 20% down.
The 5 year fixed rate is qualified on that rate – not on the Bank of Canada 5 year rate. So for instance, best rate is 4.29% today for a 5 year fixed term, this is the rate used to qualify not the 5.85%.
VERY IMPORTANT NOTE: From what we are seeing and hearing, the big banks are using the same qualifying rate regardless whether the mortgages are high ratio (CMHC) or conventional (20% as a down payment. Many other non-bank lenders are not doing this so another reason NOT to rely on your bank branch to find you the best mortgage solution. Apparently they are using this 5.85% (as of today) to qualify all mortgages because they need to streamline the process for their staff. Clearly not the expertise and flexibility that a customer wants, needs or deserves. Make sure to contact a Mortgage Broker directly for all options, not just the one option – your bank, as you may qualify for much more than what they approve or pre-approve.
2. Refinancing your home has decreased from 95% of its value to 90% of it’s value. Basically the government doesn’t want you to use your home as an ATM by taking equity out of your home via a refinance.
3. Rental properties now require a down payment of 20% whereas last week it was only 5%. New rules on how rental income is calculated has also changed. Please contact your Mortgage Broker or Agent to discuss these details.
There are options available if you have less than 20% as a down payment such as lenders that do not insure through CMHC or other insurers, however you would expect higher rates with these lenders.
4. Second homes can now be insured, so 5% as a down payment. The only caveat is that the 2nd property can’t have another unit which may flag it as a rental. It has to be a one unit property.
There is a lot to understand, please consult a Mortgage Broker to analyze your options for your particular situation or contact me directly. I would be pleased to help.
Kim Gibbons, ” Your Mortgage Superhero ®”
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