Down payment of 20% plus?  New mortgage rules that affect you

The Canadian finance minister announced stringent new mortgage rules on October 3, 2016. Anyone looking to buy a new home or refinance, may be affected, even if you have 20% down or more. This is considered a “conventional” mortgage.  (If your down payment is less than 20%, your mortgage would be “high ratio”; click here for information that would relate to your situation).

So what’s changed for conventional mortgages?

# 1 – the stress test may apply

Effective November 30th, any mortgages that lenders “back-end” insure, using portfolio insurance, will need to qualify using the new stress test.  That is, regardless of what your actual mortgage rate is, you need to qualify as if your mortgage rate is the bank posted rate, or your mortgage rate plus 2%, whichever is higher. This is called an “insurable” mortgage. You don’t pay for the default insurance, but you qualify for the “insurable” rate, which is often better.

# 2 – the max amortization will be 25 years

Any insurable mortgage must have a maximum 25 year amortization.  Borrowers with a 20% or greater down payment can still obtain a 30 or 35 year amortization, but this is not insurable, so the rate might be higher.

# 3 – properties worth more than $1,000,000 won’t qualify

Back-end insurance will be realigned to match high ratio insurance – that is, the maximum property value that can carry an insured mortgage will be $1 million.  (Hello, Toronto real estate market)

# 4 – non-owner-occupied investment properties won’t qualify

Mortgages for property investors have already been affected by mortgage tightening in the last few years.  The current round of mortgage rule changes is no exception.  These mortgages will no longer qualify to be back-end insured. To have your mortgage be insurable, you have to be occupying it.

Which lenders back-end insure their conventional mortgages?

That’s the million dollar question.  Until now, most Canadian mortgage lenders, both banks and non-bank “A” lenders, have used portfolio insurance on at least some of their conventional mortgages.  It makes their investors much more comfortable with lending the money out.  Plus, it’s allowed them to keep the rates lower than they might otherwise have been.  With the changing mortgage rules, both bank and non-bank lenders have had to re-evaluate how they will lend money, and whether they’ll need to increase rates to offset the greater costs.  Unfortunately, it’s Canadian consumers who will absorb these additional costs.  

Does this mean you will have trouble getting a mortgage?

Certainly not. The changes only affect back-end insured mortgages. All Canadian mortgage lenders are constantly re-evaluating their businesses to determine how best to continue to be competitive and profitable.  I have access to a wide range of lenders, which means I can help you navigate the new mortgage rules, and find the best mortgage for your situation.

Will lenders still offer 30 year amortizations?

Yes, they will.  The same goes for mortgages for investment properties. But you may see a bit of a premium on the mortgage rate.

Get the best rate and options possible

 If you’re borrowing to buy an investment property, are self-employed, or looking at buying a home worth more than $1,000,000, you deserve to continue to have great options and service.  Mortgage brokers like me can help you figure out the best solution for you, regardless of what is happening with the mortgage rules.  Please don’t hesitate to get in touch with me.  I’m happy to help.

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