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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.

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Whether as an investment or as a new home for your business, buying commercial real estate takes knowledge and a strategic approach to navigate through all the ins and outs of closing these deals.

While bearing some similarities to buying residential real estate, commercial properties carry additional layers and can even require more legal and financial experts. It is an expensive undertaking, one where due diligence plays an extremely important role.  

Location, location, location

The oldest adage in real estate does apply to commercial real estate and not solely because of resale value. In this case, location can determine a business’s foot traffic or tax implications. There could also be by-laws associated with certain areas and environmental issues can be regionalized.

A new set of metrics

Buying a home is engrossing and comes with its own lexicon and metrics in which to measure the worth of a home and all the associated costs. Commercial property not only uses many of the same metrics but it also has additional ones to assess value.

If you intend to buy commercial real estate, you should be comfortable with Net Operating Income (NOI) and cap rate.

A strong, thorough strategy

Part of successfully investing in commercial real estate is implementing a strategy that will minimize risks and surprises. It should reflect market trends and anticipate any potential dips. It should also contain a projection for how the investment could grow or shrink in value based on external factors.

Ask yourself the right questions

Once you’ve decided to pursue the purchase of commercial real estate, you should ask yourself the following before even visiting the first property:

• Do you want to buy or lease the property?
• Is this a business venture you want to pursue alone or as part of a group of investors?
• How much money are you willing to invest upfront?
• Can you commit the time needed to effectively run the property?
• Are you more comfortable working with a property manager or a property management company?

Buying commercial real estate comes with inherent risks but it can be very profitable and rewarding. Do your homework and partner with trusted experts who can guide you through the process.

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Personal debt can weigh on a person. It can take an emotional toll and affect someone’s relationships, job or their ability to buy a home or a car. Underlying the negative impact of debt is the tanking of your credit rating.

You don’t need good credit to fix your debt problem. While every situation is equipped with its own set of challenges, debt consolidation is a solution that can help many people. It can straighten out finances, reduce monthly costs and can help someone regain control over their life.

Here are some tips for consolidating debt:

Find the root of the problem

Are you living beyond your means? Are you paying off the debt with the lowest interest rate? Do you need to downgrade your home? Most people might be surprised to learn where their debt stems from and that there might be some obvious ways that one could tackle the problem.

It takes an honest approach to understand what is fueling your debt.

Research your different options

With debt consolidation, there’s no one size fits all. You need to understand all your options. Transferring debt or securing a loan are just two of the options. In certain cases, you could even opt for a debt settlement.

Whatever option you chose, the best course of action is to create a debt management plan. This plan can be crafted by a credit counselor or debt expert or it can be an agreement between you and your creditors that outlines the repayment plan in exchange for lower interest rates.

Avoid the usual traps

Without knowledge or a plan, you could thwart your efforts for a debt-free life instead of enabling it.

Two of the more common traps are not prioritizing the debt with the highest interest rate or consolidating debt with low-interest rates with ones with higher interest rates. You don’t want to pay a credit card interest rate for your student loan.

None of this matters if you aren’t working with a true debt professional. Choose the right partner who can help you draft a realistic plan that will get you out of debt with as little disruption to your life as possible.

Having a mortgage means having options. As a mortgage approaches its expiration date, homeowners must decide whether they want to refinance their mortgage under new terms or renew under existing ones.

It’s important to know the difference between renewing and refinancing to determine the best course of action for your situation.

What is a mortgage renewal?

Renewing your mortgage is a straightforward process. If you owe money to the lender after your mortgage expires then you can simply opt to renew. Every term you negotiated and agreed to will remain in effect. All you have to do is sign on the dotted line.

What does it mean to refinance your mortgage?

If the idea of revamped mortgage terms appeal to you, then the option of refinancing is most likely a good fit. Refinancing allows you to gauge the different interest rates and amortization options that might be available to you.

Essentially, a refinanced mortgage is a completely different deal than your original mortgage. You don’t have to wait until the length of your mortgage expires. You can refinance at any time.

Refinancing can be appealing

Refinancing is a proven way to take advantage of lower interest rates. Refinancing can also be part of your strategy to pay off other debts, typically ones with higher interest rates like pay off credit cards debt.

A mortgage needs to fit into your finances and it doesn’t have to be a hindrance. One of the reasons a mortgage is fixed to a certain amount of years is to give both lenders and borrowers the flexibility to make it work.

A renewal date is an opportunity

As your renewal date approaches, you should audit your finances to review how they have changed from when you were first approved. If things are drastically different—you now earn more income, you have paid down a significant portion of your debt—than your mortgage should reflect that.

It’s all about securing the mortgage that is right for you. One that will help you maintain your lifestyle and pay off any necessary debts.