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What Are the Three New Mortgage Rules Coming in January 2018?

It’s going to get a lot harder for some home buyers to get a mortgage in 2018. That’s because the Office of the Superintendent of Financial Institutions (Canada’s banking regulator) introduced three new rules on mortgage lending that takes effect in 2018—and the new rules will hit first-time home buyers and those thinking of refinancing their homes hardest.1

Stress Test

Starting on January 1, 2018, the Office of the Superintendent of Financial Institutions (OSFI) has set a new minimum qualifying rate, or “stress test” for all prospective home buyers, even those with a down payment of over 20%.

Before the new, tougher rule, only buyers that had a down payment of less than 20% had to make sure they could pass a stress test. Regardless of how much money you save for a down payment, if you don’t pass the new stress test, the bank won’t give you a mortgage.

Under the new mortgage stress test, potential home buyers need to qualify for a mortgage at a rate that is the greater of two indicators: either 200 basis points (2%) higher than the mortgage rate they qualified for, or the Bank of Canada’s five-year benchmark rate.

Before the new stress test, home buyers or owners qualified at the rate offered by the lender. The actual mortgage payment will still be paid at the negotiated rate, but a higher calculation is used for qualifying purposes.

Enhanced Loan-To-Value Measurements

Traditional mortgage lenders (Canada’s big banks) need to ensure the Loan-To-Value (LTV) ratio remains “dynamic.” That means, it needs to be adjusted to local market conditions.

The OSFI insists that lenders (excluding private lenders) have internal risk management protocols in higher priced markets, like Toronto and Vancouver. A LTV ratio is a number that describes the size of a loan compared to the value of the property.

Canada’s big banks use the LTV ratio to determine how risky a loan is; the higher the LTV ratio the greater the risk.

For example, if property values decrease following a housing bubble, the LTV ratio could actually rise and be higher than the total value of the property. In which case, it’s quite possible that you have negative equity in the house.

Restrictions Placed on Certain Arrangements to Avoid LTV Limits

Mortgage lenders (again, this does not include private lenders) are not allowed to arrange a mortgage or other financial product with another lender that gets around the maximum LTV ratio or other limits placed on residential mortgages.

If you apply for a mortgage with a LTV ratio of 80% and the lender can only approve you for 60%, in the past, the lender could partner with a second lender for the additional 20%, bundle it together to get a complete LTV loan of 80%.

Traditional lenders cannot do this anymore.

What Does This Mean for Homebuyers and Sellers?

The three new mortgage rules that kick in as of January 1, 2018 will hurt the fastest growing segment of Canada’s mortgage market—uninsured mortgages. That’s one out of every six prospective homebuyers in the country.

The strict stress test, which is meant to ensure borrowers can afford to pay their mortgage at a higher rate, is now being applied to all home buyers, even those with a down payment of 20% or more. Once the tests are in place, it is estimated that it could lower a family’s purchasing power by up to 21%.

Economists say the stricter mortgage rules will also negatively impact softening housing markets across the country. It is expected the tougher mortgage rules, once fully implemented, will depress housing demand by up to 10%.

If you’re a homebuyer and want to refinance a mortgage, the new mortgage lending rules will be a lot more difficult to negotiate.

Should You Be Worried?

If you’re a first-time home buyer, the stricter mortgage lending rules mean you might need to rent for a little longer or wait until your income increases before you can buy a home.

Because the purchasing power does not go as far as it once did, first-time home buyers might need to consider something besides a detached house—a townhouse house or a condo. Or, first-time homebuyers may need to get a co-signer to qualify under the strict new rules.

There are other options though. Keep in mind, the stricter mortgage lending rules only apply to those homebuyers looking to secure a mortgage with one of Canada’s federally regulated mortgage lenders.

That’s what makes Canadalend.com different. Canadalend.com works with private lenders who are not bound by the same lending rules. Because of this flexibility and freedom, they can find you the mortgage or other financial products you need.

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Call us for more information 905.881.0242

Canadalend.com, Securing You the Mortgage You Deserve

Canada’s new mortgage rules are going to make it a lot more difficult for potential homebuyers to secure a mortgage. But you shouldn’t let the new mortgage rules prevent you from getting the mortgage you deserve. Let the mortgage professionals at Canadalend.com help.

The licensed agents at Canadalend.com are independent; that means they’re able to help you find a mortgage with the best rates and terms. How can we do that? The mortgage experts at Canadalend.com have access to hundreds of different private lenders. We’ll evaluate your current financial situation and help you find a lender that can provide you with a mortgage that best suits both your financial and lifestyle needs.

To find out what kind of mortgage you qualify for, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “OSFI is reinforcing a strong and prudent regulatory regime for residential mortgage underwriting,” Office of the Superintendent of Financial Institutions, October 17, 2017; http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/emp/Pages/default.aspx.

Photo credit : iStock.com/KittisakJirasittichai

Can I Get a Mortgage if I’m Self Employed?

It’s not easy to get a self-employed mortgage in Ontario. If you’re self-employed and have tried to secure one with a traditional lender, you already know that.

Over the last few years, Canada’s big banks and trust companies have implemented a large number of strict lending rules. On top of that, in 2014, the Canadian Mortgage and Housing Corporation discontinued mortgages for self-employed Canadians without third-party validation. Before that, if you were self-employed, you only had to state your income. A paper trail wasn’t necessary to back up your claims.

That’s not good enough now. Banks need to know with certainty how much you make. It’s the only way you can prove to the big banks that you’re not at risk of defaulting and worthy of getting a mortgage.

Granted, it is possible to get a mortgage from a traditional lender if you’re self-employed, but any mortgage will be based on the reasonability of income at the time you apply, as well as a strong credit score. This sounds easy enough, but it can put home ownership out of reach for those who are self-employed.

For example, if you have less than a 20% down payment, you need to prove two years of income. Unfortunately, many self-employed people claim a smaller income for tax purposes. If this is you, the big banks will see you as a risk.

Or, the banks might give you a mortgage but only if you have a down payment of 30% or more. But with the strong housing market in Ontario, most self-employed people have not saved up that much for a down payment. As a result, they are unable to qualify for a mortgage.

Mortgage Options for Self-Employed Ontarians

There are two ways for those who are self-employed to qualify for a mortgage: with income validation and without income validation.

Validated income means you’ve been in business for two full years, the business is registered as a self-employed proprietorship, you have good credit, and you’ve declared income on your tax returns.

That doesn’t mean you’ll necessarily qualify for a mortgage with a traditional lender; it just means you have proof of income. You still need to earn enough and have enough money saved for the down payment when applying for stated income mortgages.

What if you have no reportable income? The only real option for those who are self-employed and have no reportable income is to use a private lender. A private lender will still want to know that you have an income, but they won’t ask to see the kind of paperwork the banks would.

What’s most important for lenders if you’re self-employed and have no reportable income is your credit score, the quality of the property you’re looking at, the location, and marketability.

Because private lenders are not regulated in the same way the big banks and trust companies are, they have more flexibility and can get you the best mortgage with the best rates for your particular situation. You may end up paying more interest, but you will also end up with a mortgage.

Self-Employed Mortgage Scenarios

Self-Employed with Bad Credit

Having bad credit can make it very difficult to secure a loan from a traditional lender. In addition to being self-employed, which the banks view as risky, bad credit suggests there is an even greater chance you’ll default on a mortgage.

A private lender, on the other hand, is much more concerned with your current and future earnings than past mistakes. Your credit score may be bruised, but private lenders will still help you secure a mortgage if your business is profitable and you have steady income.

Self-Employed with Low Income

If you’re self-employed and report low income, you can still qualify for a mortgage. There are a large number of private lenders that will help you secure a low-income or even no-income mortgage.

Again, private lenders understand that most self-employed Canadians try to minimize their taxable income. Private lenders know the difference between reported income and gross income. In fact, some private lenders will add 10% or 15% onto the reported income if you can show business deductions that are equal to or greater than that. This can significantly increase your mortgage eligibility.

Self-Employed and Over 55

One of the largest growing demographics among the self-employed in Ontario are those 55 years of age and older. You might be an entrepreneur but when you hit 55, banks only see that your long-term earnings potential is smaller than it was when you were 45 or 50. At the same time, chances are you’re looking for the same kind of mortgage as someone who is 25 and just getting on the property ladder.

According to the big banks, this means you’re less likely to be able to pay the mortgage off. Fortunately, there are private lenders that specialize in helping those who are 55 and older secure a mortgage.

Canadalend.com, Securing You the Mortgage You Deserve

If you’re self-employed, it’s going to be difficult to get a mortgage with a traditional lender. If a bank has turned you down, the mortgage experts at Canadalend.com can help.

Because the licensed mortgage professionals at Canadalend.com are independent, they have access to hundreds of different private lenders; many specialize in helping those who are self-employed get the mortgage they deserve.

To find out what kind of self-employed mortgage you qualify for, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Photo credit : iStock.com/Jacob Ammentorp Lund

Canadians are sitting on record debt. According to Statistics Canada, we owe almost $1.70 in debt on every $1.00 of disposable income. That’s a lot of outstanding debt. Fortunately, the Canadian housing market is strong. This means you might have built up a lot more equity into your home than you think.

It can be difficult to get out of debt, especially when you’re trying to pay off high interest credit cards, auto loans, or other consumer debt. If you’re a property owner though, you can tap into the equity you’ve built up in your home and use it to consolidate outstanding debt.

Why should you borrow against your home to consolidate debt? Through debt consolidation, you can take advantage of lower interest rates; simplify your finances by moving to one easy, monthly payment; and improve your credit score.

Below are the most popular ways in which homeowners can consolidate debt.

Does a Second Mortgage Make Sense?

A second mortgage is also referred to as a home equity loan. With a second mortgage you can borrow up to 85% of the appraised value of the property (minus the outstanding balance of the primary mortgage).

A second mortgage does not replace your primary mortgage, but it does operate like the first mortgage. You get a fixed amount of money that is payable over a fixed period of time; usually at a variable interest rate.

When you take out a second mortgage you are now responsible for making two payments; payments on the original mortgage and the second mortgage.

There are a lot of advantages to taking out a second mortgage to consolidate debt. The biggest benefit of a second mortgage is the lower interest rate. Where some credit cards can charge interest as high as 30%, interest on a second mortgage is calculated at a variable rate plus prime. Not all lenders are the same though, some will offer a second mortgage at a fixed rate.

There are many other advantages of taking out a second mortgage to consolidate debt:

• Immediate access to cash
• Can be used for whatever you like
• Lower monthly bill payments
• Paying off debts improves your credit score
• A great option for those with bad credit or a previous bankruptcy

There is a downside to taking out a second mortgage, however. Because it’s secured against your home, the lender will come after it if you default.

What About a Home Equity Line of Credit?

A home equity line of credit (HELOC) is another popular way to consolidate debt. It might sound like a home equity loan, but it’s very different. The only real similarity is that they are both secured by your home.

A HELOC is a revolving line of credit that lets you borrow against your home equity. Unlike a home equity loan, which is a lump sum payment you need to start paying back immediately, with a HELOC, you can use as much or as little as you need. You only have to pay interest on the amount you withdraw. A HELOC limit can also increase as the equity in your home grows.

The interest rate on a HELOC is calculated daily at a variable rate plus prime. Because it’s variable, the interest rate can change daily.

With a HELOC, you can access a maximum of 65% of your home’s value. On top of that, the HELOC and balance on the home cannot equal more than 80% of the home’s value.
It’s easier to get approved for a HELOC than for a first mortgage. You already own your own property and started to build up equity in it. And the lender uses the property as collateral for the HELOC.

To get a HELOC, all you will need to do is get a home appraisal, verify how much home equity you’ve built up, and provide proof of income.

A HELOC is one of the most popular ways for Canadians to consolidate debt. It is also a convenient way to access money for home renovations, trips, tuition, or any other expense, planned or unexpected.

Or a Traditional Line of Credit?

A traditional line of credit can also be used to help consolidate debt. Since the recession though, it’s become more difficult to qualify for a line of credit. To qualify for a line of credit, a lender will want to make sure you have a good credit score, income, and positive net worth.

A line of credit can either be secured or unsecured. Secured lines of credit are secured against your home or other assets. This allows you to borrow more money at a lower interest rate.

While the approval process for an unsecured loan may be quicker than a secured line of credit, they are actually more difficult to get because you need to have a good credit score. That’s because the loan is not secured against any collateral or assets.

Moreover, you might get an unsecured loan more quickly, but the amount will be less than with a secured line of credit and the interest rate will be higher.

No matter which one you qualify for, a line of credit acts like a credit card. You are spending money you don’t have and there is a predetermined limit. You also need to make a minimum monthly payment.

Canadalend.com, Helping You Consolidate Your Debt

If you have built up equity in your home, there are a number of great ways for you to consolidate debt and pay off high interest credit cards or loans. Which method you chose will depend on where you are at and what your financial goals are. Do you want a lump sum payment with a fixed or variable rate or a revolving HELOC with a variable interest rate tied to what you borrowed? The licensed, independent mortgage experts at Canadalend.com can help you.

To find out how you can consolidate your debt, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Mortgage lending is a business where the lender gets the opportunity to help people get into their dream home, secure their financial future or relieve themselves of the stress of debt. It’s an enormous responsibility and one that shouldn’t be taken lightly.

Applying a common sense approach to lending ensures that our clients are protected and that the relationship is mutually beneficial for the long-term. While lending is a complicated business, a simple and logical approach can result in successful lending and borrowing.

Who is Canadalend?

Canadalend is an experienced, friendly and full-service lender that is committed to helping their clients with all their mortgage needs, debt issues and situations involving financing and refinancing.

Canadalend is not a bank or a traditional lender but we have the experience and knowledge to manage just about any financial situation that falls under our expansive service offering. We offer a personalized service in the areas of:

• Home equity loans
• First, second and third mortgages
• Debt reduction and consolidation
• Renewals and refinancing
• Working with self-employed individuals

Our Approach

Lending should always be a business built and operated on a foundation of common-sense. We work with our clients to help them financially, both in the present and with an eye towards the future, through a process of honesty, integrity and by leveraging our expertise for their benefit.

Our common sense approach includes:

• Offering competitive rates
• Providing counsel for qualifications
• Providing flexible options
• Create strategies to help clients lower their mortgage and debt
• Provide useful cash flow options
• Offer variable rate mortgages, capped variable rates and cash back mortgages

Above all else, we will work with clients who traditional lenders typically refer to as weak investments.

Meeting your Needs

A common sense approach allows us to view applications differently and work towards finding appropriate solutions, designed to meet your needs. We view every application independently and with a unique perspective.

We often hear from our clients that dealing with Canadalend’s brokers and financial experts is a refreshing experience that produces desirable results.

Contact us today to learn more about our common-sense approach and the services we offer.