With so many changes in the mortgage and housing industry recently, getting ready to buy a house can be more than a little overwhelming.
Here is what you need to know about the changes and some of the impacts:
New Qualification Rules
New qualification rules were rolled out last October by the Department of Finance. Even though the interest rate you get on your mortgage may be still near record lows the rate used to qualify you for your mortgage, the “Stress Test,” is significantly higher using the Bank of Canada 5 year posted rate (currently 4.64%). This has had an impact for qualifying home buyers by reducing the maximum amount you can purchase affecting approx. 1 in 5 borrowers either pushing them out of the market completely or forcing them to buy in lower priced markets.
New Restrictions for Low Ratio Insured Mortgages
New restrictions for low ratio insured mortgages were implemented late November affected conventional lending. Lenders utilized mortgage insurance to mitigate risk as a cost-effective source of funding. With these new limitations and higher costs associated, they are passing these costs to the consumer in the form of higher interest rates. Conventional mortgages (more than 20% equity or down payment) now fall under 2 categories of either “Insured or Uninsured.”
“Insured Conventional Mortgages” are Purchases or Previously Insured Transfers that qualify under the same guidelines as high ratio insured mortgages. Qualified at the Bank of Canada benchmark rate on 25 year amortization, purchase price less than 1 million, and a few other criteria that limit the property and borrower criteria.
“Uninsured Conventional Mortgages” can be Purchases and Transfers qualified at the lower contract rate and can have longer amortizations, with more flexibility on qualifying criteria. All refinances will fall under this category as well. The impact of these changes comes in the form of higher rates and fewer choices.
Increased Premiums for Insured Mortgages Effective March 17
Just when you thought you had seen enough costs passed on to the consumer, CMHC announced increased premiums for mortgage insurance. The increase depends on the down payment (the rise more dramatic for loans with higher down payments) but the premium for borrowers with 5% down payment increased to 4% from the current 3.6%. For those with 10% down payment, premiums increased to 3.10% from 2.40%, 15% down payment a full 1% increase from 1.8% to 2.8%. Conventional lending with more than 20% down payment where you normally see the lenders pick up that cost will certainly be reflected in higher interest rates for the consumer as the 25% down payment category increased from .75% to 1.74% and the 20% down payment increased to 2.4% from 1.25%.
It is definitely more challenging today than ever to qualify and find your best mortgage solution – As mortgage brokers we monitor the markets for the best deals and most flexible terms making sure you understand your options. Let us help you qualify and choose the right mortgage for your next purchase, call us today.