The Department of Finance announced several new regulations early October that will have significant impact on the mortgage industry which in turn will affect you the consumer.
The first one, which was put into place on October 17, 2016, requires that all insured mortgages, regardless of term (fixed or variable) will now have to QUALIFY on the greater of the contract rate or Bank Of Canada (BOC) benchmark rate (currently 4.64%). This new “Stress Test” is aimed at protecting Canadians in the event rates start to rise.
An Insured Mortgage is when a home buyer has less than 20% down payment or the mortgage is insured by either CMHC, Genworth, or Canada Guarantee. The insurance premium is paid by the borrower and usually added to the mortgage. The insurance provides security to the lender in the event of default. A Non-Insured Mortgage is when a home purchaser has 20% or more down payment and is not required to pay the mortgage insurance.
The second one, which comes into effect November 30, is for lenders who use portfolio insurance for their conventional business. Both banks and non-bank lenders currently use insured low-ratio government-backed insurance for a variety of mortgages as an option for cost-effective funding of these mortgages. These mortgages will now also have to fit into the “Stress Test” requirements and be qualified at the higher benchmark rate, on shorter amortizations, and they can only be purchases or renewals of purchases. There are other ways to fund these conventional mortgages, so you will still be able to have the option to qualify for your mortgage at the contract rate, but they are more expensive for lenders and banks who will also, come January, be required to assign more capital to their mortgages.
What does this all mean to you?
In simple terms, come November 30, 2016, mortgages will be more expensive for lenders. These costs will be transferred to you, the consumer, in the form of higher rates.
I already have a great mortgage, should I do anything?
YES! You should do a thorough analysis of your current mortgage with a mortgage broker to determine how to best manage your largest debt and biggest investment.
The Mortgage Advisors can help you determine what the options are for your mortgage today before rates and rules change.
- It may be in your best interest to break your current mortgage and refinance, access equity today
- It may be an option to transfer to a new lender to take advantage of lower rates
- Perhaps increase your current payments in anticipation of increased renewal rates.
- Or maybe you should hold steady on your current course
It’s almost unheard of that we can offer you rates starting at 2.24% for a 5-Year Fixed Mortgage, this will not last. After November 30th, rates will rise. Schedule a time to review your options today.