Major Changes in Mortgage Qualifying

[stampsx2]

Originally Posted by MillerTime GFG

That's the most puzzling part...there are so many holes in this plan that it seems like it was a knee-jerk reaction implemented by one person.

The Mortgage Professionals of Canada (MPC) are the voice for brokers across the country and an important part of the housing industry. Brokers represent 33% of all mortgages, and 50% of first-time buyers. For them to not even consult with the MPC is crazy. That's why the word "collusion" has been thrown around a couple times, as again, it's a big win for the big-6. Less competition = bad.

Not sure how it would benefit the big banks. I mean you're still going to get the best rate with a mortgage broker, you just wouldn't qualify for as much. Unless I'm missing something here.

[Cecil Terwilliger]

Originally Posted by stampsx2

Does anyone know if this will affect those giving 20% or more for their down payment? I'm getting so much mixed information.

These changes affect only high ratio mortgages, so no, 20% down is excluded.

Lenders can ask for conventional mortgages to be insured (or bulk insured as referred to in the OP on some types of properties), but for your standard home purchase with 20% down, you can qualify at the rate you are actually getting.

[opendoor]

Originally Posted by stampsx2

Does anyone know if this will affect those giving 20% or more for their down payment? I'm getting so much mixed information.

If the mortgage is to be insured and backed by the government, then the borrower would need to qualify at the Bank of Canada posted rate. Lenders have been pretty fond of insuring most of their mortgages (I read that something like 75% of CMHC's coverage is for >20% mortgages), so a lot of borrowers with over 20% down would still need to qualify at the higher rate. Though it still definitely remains to be seen how it'll play out.

Originally Posted by stampsx2

Not sure how it would benefit the big banks. I mean you're still going to get the best rate with a mortgage broker, you just wouldn't qualify for as much. Unless I'm missing something here.

Smaller lenders rely on being able to package up government backed mortgages into securitization vehicles and selling them to raise more capital that can then be loaned out. Banks are less reliant on that since they're able to use deposits and other assets to back the loans, so it's possible this could make smaller lenders less viable if it makes insuring mortgages harder. If a bank can get away without insuring a lower ratio mortgage they'll be able to offer better terms and more money than a broker who needs to follow the government rules. So for instance if someone with $250K in salary wants to borrow over $1M for a mortgage for a house in Vancouver, a broker might not be an option after these new rules kick in, whereas a bank would be more able to handle it

That said, I don't know that the effect will be that huge. From what I've read, the government has been cracking down on portfolio insurance for a few years now. And if smaller lenders aren't viable without the government taking on most of the risk, then I'm not sure it's a viable business model.

[opendoor]

Originally Posted by Cecil Terwilliger

These changes affect only high ratio mortgages, so no, 20% down is excluded.

Lenders can ask for conventional mortgages to be insured (or bulk insured as referred to in the OP on some types of properties), but for your standard home purchase with 20% down, you can qualify at the rate you are actually getting.

That's not really true. The November 30th changes affect lower ratio mortgages as well. The difference with them is most of the insurance happens behind the scenes because the premiums are low enough that the lender usually just pays them because they're the ones who benefit from the reduction in risk.

[Cecil Terwilliger]

nm

[Cecil Terwilliger]

Originally Posted by opendoor

That's not really true. The November 30th changes affect lower ratio mortgages as well. The difference with them is most of the insurance happens behind the scenes because the premiums are low enough that the lender usually just pays them because they're the ones who benefit from the reduction in risk.

Ok I'll rephrase:

It could potentially affect conventional mortgages but most large lenders will likely be exempt.

[opendoor]

Originally Posted by Cecil Terwilliger

Ok I'll rephrase:

It could potentially affect conventional mortgages but most large lenders will likely be exempt.

I think you're underestimating how many mortgages are insured. Banks insure their low ratio mortgages too because it allows them to have less available capital. Essentially they loan money on one mortgage, insure it, and then use that mortgage as security to be able to loan out more money.

There are something like $1.2 trillion in mortgages in Canada and the CMHC alone insured over $525B, nearly 40% of which was portfolio insurance. Last figures I saw said that they had about a 50% market share with Genworth and Canada Guarantee making up the rest, so if those numbers are correct the vast majority of mortgages in Canada are insured regardless of whether low or high ratio.

Who knows how it'll actually play out though.

[Flamenspiel]

Originally Posted by stampsx2

Not sure how it would benefit the big banks. I mean you're still going to get the best rate with a mortgage broker, you just wouldn't qualify for as much. Unless I'm missing something here.

I think the difference is the big banks have always qualified at the posted or BOC recommended rates(at least BMO and TD did). No change there. Now all lenders will have to do that.

[MillerTime GFG]

Originally Posted by Flamenspiel

I think the difference is the big banks have always qualified at the posted or BOC recommended rates(at least BMO and TD did). No change there. Now all lenders will have to do that.

Not true. Banks qualify their mortgages at their contracted (best) rates, but use their posted rates when calculating their penalties for breaking the mortgage.

These changes will impact all conventional mortgages, whether with a big bank or not. Monoline lenders will find a way to adapt, and have already shown signs of that. There will be a trickle down effect across the board, and it's going to lead to higher costs to the consumer.

[MillerTime GFG]

Originally Posted by Cecil Terwilliger

Ok I'll rephrase:

It could potentially affect conventional mortgages but most large lenders will likely be exempt.

If by large lenders you mean the big 6 banks, then you're referring to around 66% of the market share. The remaining 33% is a massive amount when you put a dollar amount to it. You're discounting the impact this will have.

[Cecil Terwilliger]

Originally Posted by MillerTime GFG

Not true. Banks qualify their mortgages at their contracted (best) rates, but use their posted rates when calculating their penalties for breaking the mortgage.

These changes will impact all conventional mortgages, whether with a big bank or not. Monoline lenders will find a way to adapt, and have already shown signs of that. There will be a trickle down effect across the board, and it's going to lead to higher costs to the consumer.

This isn't true for all banks.

Originally Posted by MillerTime GFG

If by large lenders you mean the big 6 banks, then you're referring to around 66% of the market share. The remaining 33% is a massive amount when you put a dollar amount to it. You're discounting the impact this will have.

I'm not sure what you mean. I didn't mention any opinion on the impact.

[MillerTime GFG]

Originally Posted by Cecil Terwilliger

This isn't true for all banks.



I'm not sure what you mean. I didn't mention any opinion on the impact.

I don't know of any banks that do not use posted rates when calculating penalties, though not all of them are in the broker channel. Of the big 6 though, I believe they all do. I've seen penalties from all of the big 6, and they're always astronomical.

[Calgary14]

Any idea how this will affect variable rate mortgages on renewal? I'm currently at a low rate (1.90%) and I'd like to keep it that way.

Also - I heard the changes will cause alternative lenders to suspend operations - what happens if a loan is under an alternative lender and on renewal they've suspended operations? Will consumers be forced to switch to a big bank (and whatever rates they have)?

[Alpine Fisher]

How did you get 1.9?
holy smokes Sal.

[Calgary14]

Originally Posted by Alpine Fisher

How did you get 1.9?
holy smokes Sal.

5 year variable rate. I shopped around, avoided the big banks and used a broker. I used Rate Spy to compare rates often

[albertGQ]

I just got 2.05 on my variable.

[Alpine Fisher]

I have 2.1 on one of my mortgages. its a variable 5 year.
Im going to use rate spy when one of my mortgages comes for renewal. I avoid big banks too

[Kjesse]

Maybe a little off topic, but how does a lender make money at even 2% per year. That's about where my mortgage is also but is there not better places to put your money as a lender?

[Faust]

Any recommendations to a really good mortgage broker? My renewal is coming up with Scotia Bank and I want to ensure that I am getting the best deal possible.

[ken0042]

Originally Posted by Faust

Any recommendations to a really good mortgage broker? My renewal is coming up with Scotia Bank and I want to ensure that I am getting the best deal possible.

I suggest you look at our sponsored subforum, as well as the signatures of the people who have been posting in this thread.