Mortgage Rule Changes as of November 01, 2012

Mortgage Rule Changes as of November 01, 2012

For your convenience, below is a summary of the primary mortgage changes. Keep in mind though, as an independent mortgage firm, we have access to a wide variety of lenders who offer alternative solutions. So be sure if you or your clients require financing, to call our office first and get a personalized mortgage analysis.



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Mortgage Rule Changes as of November 01, 2012



1. Lines of Credit: You can now only borrow to a maximum of 65% loan to value of your property - in the past it was 80%



2. Self-Employed: Clients who are self-employed and want to use their "stated income" (gross incomes), can go to a maximum loan to value of 65% on conventional mortgages.



3. All Variable Rate Mortgages must use the 5-year Bank of Canada benchmark rate to qualify as well as any fixed or variable terms less then 5 years insured or conventional must qualify on the 5 year fixed Bank of Canada benchmark rate. For example, if you secure a 2 year fixed rate at 2.79%, your mortgage application will be qualified based on the 5 year fixed benchmark with currently sits at 5.24%



Changes as of July 09, 2012



The changes listed below ONLY effect purchasers who plan on putting less than 20% down payment otherwise known as high ratio mortgages, insured through CMHC or Genworth.



These changes speak to ensuring we have a strong first-time homebuyers, who are building equity in their properties, to soften debt exposure and limit the loan to value ratios on higher priced real estate.



It is important to understand again that these current changes will NOT effect consumers providing a down payment of 20% or more.



CHANGES ANNOUNCED



1. Amortizations reduced to 25 years from 30 years. (on properties with less than 20% down payment)



EXAMPLE*:

A mortgage of $250,000 with a 30 year amortization at 3.09% 5-year fixed rate = $1094.89 monthly payment

A mortgage of $250,000 with the new 25 year amortization at 3.09% 5-year fixed rate = $1227.54 monthly payment



Difference of $132.65 per month



2. Refinancing is REDUCED from 85% Loan-to-value (LTV) to 80% - no change to purchases. (It is important to note that most consumers currently choose to do refinancing to a maximum of 80% LTV to avoid insurance fees so this specific change should have very little impact)



3. Properties purchased over $1 Million no longer will eligible for mortgage insurance (If the home purchase price is under $1 Million dollars consumers can still purchase up to 95% LTV with insurance – anything over $1 Million dollars, 20% down payment is required).



4. GDS and TDS set at 39% and 44% if credit score is over 680 - The reduction in amortization combined with the lowered GDS ratio could affect a number of people’s ability to qualify. If your credit score is below 680 you can qualify on a lesser GDS of 34% and TDS of 40



THE GOOD NEWS



• 5% down payment rule still remains in effect for property values under $1 Million dollars

• Mortgage brokers have access to specialty lenders in addition to mainstream banks and trust companies to help you get approved even if you fall outside the guidelines.



As the mortgage qualification landscape becomes more complicated, it is critical consumers work with an independent mortgage professional that understand these changes and can help navigate the rules to ensure the best mortgage solution.





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