The impact of mortgage rule changes
The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.
Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.
The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on a year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.
But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.
The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?
The latest round of rule changes are rumoured to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.