Major Changes in Mortgage Qualifying - Calgarypuck Forums - The Unofficial Calgary Flames Fan Community

MillerTime GFG · 10-03-2016, 01:28 PM

Was going to post this in my Mortgage Broker (CP power ring) thread, but the changes are quite significant so I wanted to post it here as well.

What a crazy day this has turned out to be. First off, my brokerage (Invis-Mortgage Intelligence) merges with Mortgage Alliance to become the largest full-service brokerage in Canada, and then this news:

http://www.theglobeandmail.com/news/...ticle32206297/

I'm going to stick to mainly the points more related to CP, as the other portion is to do with foreign ownership.

- All insured mortgages will now need to be qualified at the Bank of Canada benchmark rate, which is currently 4.64%. Previously, any fixed term 5 years or longer would be qualified at your actual contract rate, and only variable or fixed terms less than 5 years needed to use the benchmark rate. This will have major impacts on what people can qualify for.
- Bulk-insured/portfolio insured mortgages (>20%) down will require the same as the above. A lot of lenders do bulk-insure their mortgages even at >20% down, so this too will have a significant impact.
- Max amortization on any insured mortgages will be 25 years, even if >20% down.

This goes into effect October 17th, so if you're needing to utilize the current regulations, you will want to get your application in quickly.

Update:

There is still some uncertainty as to exactly how a 5-year fixed will be calculated, as it may not be the Bank of Canada benchmark rate. They may create a new benchmark rate just for fixed rates for qualifying. Otherwise, this would lead to a huge spike in variable rate mortgages, which they wouldn't want to see.

Also heard from a couple of my reps at the big banks that they will 'most likely' follow suit with the new regulations for >20% down, even though they don't bulk-insure.

Thoughts?

Cecil Terwilliger · 10-03-2016, 01:31 PM

I guess Genworth saw this coming as I'd been hearing lots of rumours that they have been severely restricting the applications they'd been approving. That and they want to reduce their risk in Alberta.

Any rules to make qualification harder are good IMO. Along with closing the capital gains loophole, I think this will benefit Canadians in the long term, even if it may hurt a few people in the short term.

PaperBagger'14 · 10-03-2016, 01:34 PM

Wow, my girlfriend and I couldn't have timed a house purchase better. We have 2.39% with a ~20% down payment. That combined with financial analyst reports saying Alberta is now at rock bottom makes me feel great about this purchase.

MillerTime GFG · 10-03-2016, 01:41 PM

Quote:

Originally Posted by PaperBagger'14

Wow, my girlfriend and I couldn't have timed a house purchase better. We have 2.39% with a ~20% down payment. That combined with financial analyst reports saying Alberta is now at rock bottom makes me feel great about this purchase.

The changes won't impact your actual interest rate, only the interest rate used when calculating what you can qualify for.

So for example, if you purchase a place after this goes into effect, your 5-year fixed rate may still be that 2.39%, but when qualifying your debt-to-income (aka GDS/TDS), the Bank of Canada rate of 4.64% currently will be used as opposed to your actual contract rate of 2.39%. You will only be paying interest at 2.39% throughout the term though.

Knut · 10-03-2016, 01:41 PM

Quote:

Originally Posted by PaperBagger'14

Wow, my girlfriend and I couldn't have timed a house purchase better. We have 2.39% with a ~20% down payment. That combined with financial analyst reports saying Alberta is now at rock bottom makes me feel great about this purchase.

From my understanding, you could still get a lower rate, it is just you have to qualify at a higher rate. This builds in a 1-2% into approvals so that small interest increases do not decimate home owners stretched to the max.

opendoor · 10-03-2016, 01:44 PM

Are most >20% down mortgages insured through the bulk insurance? Like if someone had a mortgage with 50% equity would they need to qualify at the BOC rate?

MillerTime GFG · 10-03-2016, 01:47 PM

Quote:

Originally Posted by opendoor

Are most >20% down mortgages insured through the bulk insurance? Like if someone had a mortgage with 50% equity would they need to qualify at the BOC rate?

Monoline lenders (those that only do mortgages) such as First National, MCAP, Street Capital, to name a few, all bulk-insure their mortgages.

My initial thoughts are that this could be a significant advantage to the big banks (BOOOOOOOO!), as they do not bulk-insure. Will be interesting to see how this plays out over the next few days as lenders react...

Hockeyguy15 · 10-03-2016, 01:51 PM

This doesn't apply to me, but would this effect people who have been pre-approved? In theory they could already be pre-approved but then when they make their actual purchase could they be denied even if the cost of the home was in their pre-approval range?

CroFlames · 10-03-2016, 01:53 PM

Thanks NDP

MillerTime GFG · 10-03-2016, 01:57 PM

Quote:

Originally Posted by CroFlames

Thanks NDP

I heard it was all Nenshi.

Firebot · 10-03-2016, 02:10 PM

When I was qualified for my mortgage a few years ago, the number used was the bank posted rate, which was in the 4-5% range. I am pretty sure the impact of this will be minimal as banks already practices a similar rule (I am sure some financial institutions did not)

Kjesse · 10-03-2016, 02:13 PM

This is a decelerator intended to stop overheating the speculation side mostly, but impacts everyone.

If you were trying to get into the market for the first time this will set you back, but probably actually help you in the longer term.

Edit: Those changes for the bulk buying market are long overdue. This is meant I think to prevent a sub-prime mortgage debacle like the US saw years ago with its "asset backed paper" transactions, which sparked their recession.

MillerTime GFG · 10-03-2016, 02:14 PM

Quote:

Originally Posted by Hockeyguy15

This doesn't apply to me, but would this effect people who have been pre-approved? In theory they could already be pre-approved but then when they make their actual purchase could they be denied even if the cost of the home was in their pre-approval range?

Live deals only, meaning an accepted offer on a house is required. Pre-approvals will not hold the existing rules for you unfortunately.

Kjesse · 10-03-2016, 02:18 PM

And one more thing, if you want to get into the market as a first time buyer you have a week or so under the old rules. Or if you want to buy, say, 1000 risky mortgages.

Bonded · 10-03-2016, 02:24 PM

So, all in all, may put some downward pressure on pricing? Can't see this having a huge effect in the short term.

Fuzz · 10-03-2016, 02:30 PM

Quote:

Originally Posted by Delgar

And one more thing, if you want to get into the market as a first time buyer you have a week or so under the old rules. Or if you want to buy, say, 1000 risky mortgages.

CP group buy?

troutman · 10-03-2016, 02:49 PM

CBC made this illustration:

http://www.cbc.ca/news/business/otta...tate-1.3788725

According to interest rate-comparing website RateHub, a hypothetical borrower with $100,000 in annual income and $40,000 to put down on a house today could qualify for a house worth $665,435 with a mortgage at 2.17 per cent, which three lenders are currently offering, according to the site.

But under the new rules, that same buyer could only qualify to buy a home for $505,762, or 24 per cent less than before the rules kick in. The lender is still willing to offer that lower rate, but the borrower would no longer be allowed to get it under the stricter rules, because his or her finances would be tested as though the mortgage rate is more than twice as high as it is in reality.

MillerTime GFG · 10-03-2016, 02:54 PM

Quote:

Originally Posted by troutman

CBC made this illustration:

http://www.cbc.ca/news/business/otta...tate-1.3788725

According to interest rate-comparing website RateHub, a hypothetical borrower with $100,000 in annual income and $40,000 to put down on a house today could qualify for a house worth $665,435 with a mortgage at 2.17 per cent, which three lenders are currently offering, according to the site.

But under the new rules, that same buyer could only qualify to buy a home for $505,762, or 24 per cent less than before the rules kick in. The lender is still willing to offer that lower rate, but the borrower would no longer be allowed to get it under the stricter rules, because his or her finances would be tested as though the mortgage rate is more than twice as high as it is in reality.

CBC should really fact-check, as the minimum down payment on a purchase of $665,435 would be $41,543.50, as per the down payment changes implemented earlier this year.

But it does give a decent idea as to how much of a gap in qualifying this rule creates.

MillerTime GFG · 10-03-2016, 03:12 PM

Update: (Added to OP as well)

There is still some uncertainty as to exactly how a 5-year fixed will be calculated, as it may not be the Bank of Canada benchmark rate. They may create a new benchmark rate just for fixed rates for qualifying. Otherwise, this would lead to a huge spike in variable rate mortgages, which they wouldn't want to see.

Also heard from a couple of my reps at the big banks that they will 'most likely' follow suit with the new regulations for >20% down, even though they don't bulk-insure.

Leeman4Gilmour · 10-03-2016, 03:18 PM

Quote:

Effectively, that means borrowers will be tested against their ability to pay their mortgage if actual rates were as high as the big bank's five-year posted mortgage rates, which the Bank of Canada says currently average 4.64 per cent.

That requirement was already in place for many borrowers, including so-called "high-ratio" mortgages for people with small down payments, and borrowers who borrowed money on terms of less than five years.

I think this piece of information is important. I would think a lot (most?) people fall into the high ratio category. This change just affects the rest.