It’s been a frantic week for many in the mortgage industry as our government unexpectedly changed the mortgage rules on June 21st. This is the fourth time in four years that Finance Minister Jim Flaherty made such decisive action after recently telling the banks to tighten lending criteria on their own. To add to it, the Office of the Superintendent of Financial Institutions, more popularly known as OSFI made some changes as well.
The rule changes from the Department of Finance are as follows:
– Amortization dropped from a maximum of 30 years to 25, meaning that if you qualify for a $300,000 or $400,000 purchase price today, you would qualify for $272,000 or $360,000 come July 9th.
– Refinancing to 85% of the value of your home (commonly known as loan to value LTV), has dropped to only 80% of the value.
– Limiting the gross debt service from 44% to 39% of your income, this has to do with your affordability.
– Mortgage insurance for properties over $1 million dollars has been eliminated.
OSFI has changed the following and lenders have until their fiscal year ends to make the changes (October 31st to March 31st, not that we expect lenders to wait that long):
– HELOC’s, the maximum LTV has dropped from 80% to 65%.
– Qualifying rates now affect mortgages without mortgage insurance, meaning one will have to qualify for the government of Canada five-year fixed even if they are taking mortgage insurance.
– Self-employed: Be prepared to provide even more documentation and reasonability for your income.
– Down payments: Cash back should no longer be used for down payments, this effectively limits 100% financing and is one of the most common sense changes made.
Flaherty said in a press briefing, “I have been listening to the market, and quite frankly I don’t like what I hear.” Meaning he figures that Canadians household debt and housing market is overheated and needs some corrections towards forced savings.
Between the Department of Finance and OSFI these changes are directed at all Canadians and the entire market, even though pockets of problems exist, the problems are not bred in Alberta, but affect us nonetheless.
Some executives say that these rule changes are warranted, others not so much, regardless though is the fact that the government has provided only 18 days and 10 business days to handle the volumes that will be reaching lenders as many consumers jump in the market to get that 30 year amortization or 85% ruling for refinancing.
Many lenders not equipped to handle the volumes may simply just retreat and place the new rules in effect prior to the July 9th deadline as happened in the past.
Canadian Association of Accredited Mortgage Professionals (CAAMP) feels the government has “overreached” with this latest round of changes. In a statement last Thursday it said, “CAAMP believes that Canadians understand the importance of paying down their mortgages. These changes, together with new OFSI underwriting guidelines may precipitate the housing market downturn the government so desperately wants to avoid.” Rob McLister of Canadian Mortgage Trends said it best, “But heck. With housing-related activity comprising 1/5 of GDP and resale housing adding $20 billion+/- in spending and 165,000+ jobs this year, what’s the worst that could happen?”
Luckily for most Albertans these changes can be absorbed by our increased incomes and strong economic growth, but for others around the country, this is going to be market turning events for them.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for questions or appointments at 403-343-1125 or emailed to firstname.lastname@example.org.