17 Nov

2018 Forecast: New Mortgage Rules Beginning January 1st

General

Posted by: Krishna Menon

According to the Royal Bank of Canada, new mortgage rules expected next year with lead borrowers into the arms of unregulated federal lenders. Beginning on January 1, 2018, Canadian homebuyers will be required to meet stricter guidelines if they hope to qualify for a mortgage with an Canadian mortgage lender.

 

The Office of the Superintendent of Financial Institutions Canada (OSFI) has now confirmed that as of January 1st, all borrower will have to qualify for a mortgage with interest rates 2 percent higher than the rates they are applying for. This applies to “all” borrowers, even if you have a 20 percent down payment.

 

This new rule will be enforced in hope of decreasing household risks as interest rates continue to rise, especially for households with a high level of debt. In the long-term, risks will be reduces as a result. However, in the short-term, these rules will definitely rock the market, because most people don’t have insured mortgages, including nearly half of bank mortgages.

 

It’s hard at this point to predict the impact on the housing marketing, as the impact is really dependant on how many borrowers switch to unregulated federal lenders, that are exempt from this new rule. This include lenders such as credit unions and Caisses Populaires.

 

Until the end of 2017, RBC does expect there to be a rush of homebuyer activity, as homebuyers attempt to qualify for mortgages before these new rules take effect. After, it takes effect, RBC also anticipates that the rush in traffic will die down with minimal impact on the Canadian housing market.

 

According to a study released by the Fraser Institute, loan prices will increase and less people will be eligible to qualify for mortgages, resulting in doing more harm than good.

 

With this rule, also comes a requirement for a “stress test” which all borrowers must complete to ensure they could remain undamaged or unaffected by the higher interest rates. Only insured buyers with less than 20 percent down were tested previously, however now all borrowers will be tested. The stress test is meant to ensure that borrowers would be able to pay their loans if interest rates become higher.

 

Basically the test will simulate the financial situation of a borrower, assuming they’d pay back their loan at the posted average, instead of the negotiated. Borrowers will be tested at 2 percent higher than their actual mortgage rates or at the 5-year average posted mortgage rate. It all depends on whichever is higher.

 

If your mortgage is up for renewal in 2018, stick with your existing lender. Then there is no need to worry as you will not have to undergo stress testing, as these new rules would not apply to you.

 

The new rules will now also require that lenders be more critical in observing and examining loan-to-value (LTV) ratios of the loans they approve. This requirement will be in place to ensure that mortgage loans aren’t higher than LTV of the home itself.

 

11 May

Has Your Credit Rating Been Tarnished? How-to Buy a House In Today’s Mortgage Market

General

Posted by: Krishna Menon

If you are one of the thousands of Canadians who has had to declare bankruptcy or enter into negotiations with creditors to settle your debt with a consumer proposal, it’s likely that your credit rating has gone through the dirt.

In the future, getting a mortgage can be challenging since your tarnished credit has the ability to limit your options. If you’re a credit-challenged buyer you need to research and plan carefully. In this case, there are a few things you need to know.

Wait It Out
If your bankruptcy or consumer proposal is underway when you decide to purchase a new home, know that mainstream lenders will not approve or even consider you until two years after you’ve been discharged. Even after the two-year mark you’ll need to be able to prove that your job is stable and that you have income.

We know that two years might seem like a long time, but waiting it out could be the best option and in your best interest. If you simply cannot wait for two years to pass, it doesn’t mean that you can’t get a mortgage, but there will be less even options for you including up to a 25 percent down payment.

Mortgage Rates
Getting a mortgage following a bankruptcy or consumer proposal will require you to pay a sub-prime rate premium, on top of your broker fees. The reason being it that all mortgages are priced by lenders depending on the level of risk a home buyer presents.

However, non-prime rates can be 4 or 5 percent, but this really depends on your employment and income stability and the reason why your credit was trashed in the first place. If your explanation for bad credit is considered reasonable then you could potential get a better rate. Let’s say your reason is due to medical illness, lenders may have more sympathy for you.

To increase your chances of getting an even lower rate, be ready to prove six to twelve months of on-time repayment for your utility or home-related bills.

Re-Establish Your Credit
Although your past may show signs of your inability or avoidance to pay your debts and bills on time, you can make this right through the bankruptcy or consumer proposal processes by re-establishing your credit. This is what will help you to earn back trust with lenders. For lenders to take you seriously, you should have:

● A minimum of two credit accounts (credit card, instalment loan, car loan, etc)
● At least two years of payment history on the two credit accounts
● A minimum credit limit of $1,000

Take Your Time
With a new mortgage and homeownership, comes more responsibilities and expenses. Buying a home isn’t an urgent thing when your credit is not in the greatest shape, but once your credit is repaired (at least between 650 to 680) and you have savings for your down payment this is the perfect time to jump right into it.

At this time, your mortgage payments will be more affordable and save you thousands of dollars in interest.

If you’re ready to get started or want to learn more before taking the next step contact us.