October 31, 2014

HEADS UP: If You Need to Refinance, Purchase Or Sell Your Home

I normally send my blogpost every Wednesday, however I wanted you to be aware of the changes to mortgage financing/refinancing to give you time to take advantage of the old rules.  New Mortgage Rules Effective July 9, 2012

Finance Minister Jim Flaherty and the Central Bank Governor Mark Carney have made major changes to the lending guidelines in order to head off runaway inflation in the overheated housing sector.  With Europe’s problems continuing to undermine the global recovery, he has little choice but to keep the bank’s interest rate at it’s current level to spur economic expansion.  However, they are still worried that historically low interest rates are enticing Canadians to take on dangerously high levels of debt, particularly in home-buying.  So the Harper government is trying to offset the negative impact of the central bank’s pro-growth low-interest rate policy by making it harder for Canadians to take out mortgages.

“Our economy cannot depend indefinitely on debt-fuelled household expenditures, particularly in an environment of modest income growth” Carney stated.  Flaherty said he acted to toughen mortgage rules for the 4th time in 6 years to slow the growth of a real estate bubble.  He singled out the condo market in Toronto as the most troubling hot spot and he wants to lower the temperature on Toronto’s condo boom and break the fever pitch of home purchases fuelled by low interest rates.

The government is tightening mortgages by:

  1. Reducing the maximum amortization for government-insured mortgages from 30 to 25 years
  2. The maximum Canadians can borrow when refinancing their homes drops from 85% to 80% of its value
  3. Mortgage insurance will no longer be available for homes with a purchase price of more than $1 million
  4. Tougher standards will be imposed in terms of what percentage of gross family income is needed to cover housing-related costs, such as mortgages, utilities and taxes
  5. Reducing the Total Debt Service Ratio (TDS) from 44% to 39%
  6. Maximum reduced from 80% to 65% of the value of their properties for home lines of credit (existing HELOC’s are not affected)
  7. The qualifying rate is being toughened for conventional mortgages (this will push a small number of borrowers into 5 year fixed rates because they won’t qualify for shorter terms)
  8. All self-employed borrowers must provide “reasonable” income verification (i.e. notice of assessment) and stated income mortgages are officially a thing of the past for mainstream lenders
  9. Cash back should not be considered part of the down payment and this effectively eliminates 100% financing

The irony of the changes is that any expected impact will be mainly felt in the resale market because developers have long required a 20% deposit in the pre-construction phase of condo projects.  That is due to condo developers needing to ensure that buyers are a sure bet for deals closing two to three years down the road in order to get the construction financing from the banks.

Flaherty said the new rules will only affect fewer than 5% of homebuyers, those stretched so thin that they would impact the Canadian economy if the housing market takes a downturn that many believe is overdue.

Fortunately, the proposed changes in the original draft for items like requalification on renewals were not implemented.  Also, federally regulated lenders have until “no later than fiscal year-end 2012″ to comply with these guidelines.  However, OSFI expects lenders to comply sooner if possible, so we may not see some of these changes take affect for a few weeks or months.

Act now if any of these items will impact you in the near future and should you be selling your home, this could also impact your purchasers.  Call me for a quick, confidential analysis of your finances.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

 

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