Canada’s new mortgage rules are designed to make it harder for you to qualify for the mortgage you have right now and they are being introduced on January 1st, 2018. The new rules will affect at least 15% of Canadians. Whether you are looking to borrow more money against your home or simply want to move to a different lender for a better rate, you will be affected. Canadians will be forced to borrow less money as the income required to qualify for a mortgage will increase by about 20%. The Government of Canada is making it harder to shop for a better mortgage and more difficult to access the equity in your home, we believe that this will result in higher mortgages rates for some consumers.
Here are some tricks to help you navigate the new rules, and some advice to help you come out of this stronger financially.
- Access the equity you have available to you now, before it becomes impossible due to regulations, or prohibitively expensive.
Almost one year ago to the day I wrote an article titled, “What Happens When Access to Equity Becomes a Valuable Commodity.” Since then we have seen dramatic changes to the mortgage market in Canada. Last week’s new rules mean all Canadians looking for a mortgage will need to qualify at the Bank of Canada’s posted 5 year fixed rate, today that rate is 4.89%. If that seems high, that’s because it is, this posted rate is usually about 2% higher than the rate a MorCan Direct client would ever see. The posted rate is usually reserved for a bank client who won’t negotiate for a better rate, or doesn’t have any other options.
Last year’s newsletter, warned that equity was going to be harder to access, and it has become harder. This newsletter should encourage anyone thinking of using the equity in their homes to do so as soon as possible. Last year rates were between 0.5% and 1.0% lower than they are today. Mortgages were also much easier to qualify for. In another year your equity could be locked up by regulations or worse, eroded by decreasing property values.
- If you do use your home to borrow, use your equity to create wealth, don’t spend it!
As capital becomes scarce more investment opportunities will present themselves. As the Banks retreat from real estate lending and consumers search for money, an opportunity will be created for investors who have access to lower cost debt to generate a healthy risk weighted return.
If you can access debt from your home now at 2.5% and you know that it will become more difficult and more expensive to access that debt in the future, shouldn’t you be proactive? This strategy is not for everyone. Taking on debt to invest is risky and for many it is simply outside of their comfort zone. But, if you are considering using the equity in your home to invest, now is the time. Identifying this opportunity, we created a Mortgage Investment Fund several years ago that has been performing really well. If you are interested in learning more about our Mortgage Fund just let us know and we can send you some information.
- Partner with a Good Lender. Now!
When it becomes harder to switch mortgage lenders what do you think will happen to the renewal agreement you will be offered? Our advice is to find a great lender now. The big banks are not in the business of giving you a good deal at the expense of their shareholders. Non Balance sheet lenders typically offer much better rates without the need for negotiation at the maturity of your loan. If you think you may not qualify to refinance your mortgage with the new rule changes, you will likely be stuck with the same lender for some time, be sure that you are with a lender that will treat you fairly.
- If you get stuck, find a good Mortgage Broker.
Lets face it, there is a chance that you will not act in time for the January 2018 deadline, and that is okay too. Not everyone has mortgages on the brain every day like we do. If you do get stuck, find a great mortgage broker to help you, don’t just go to your bank and expect them to help. A great mortgage broker doesn’t have to mean MorCan Direct, although we would be really happy if you did come to us. A great mortgage broker will help you navigate the rule changes to get the deal that is best for you. For instance, choosing a longer amortized mortgage in the face of increased qualifying rates will help a borrower qualify for a larger mortgage. From adding a Guarantor, or an applicant to a mortgage who can contribute some income to sourcing rental income from the subject property or other properties you may own. A good mortgage broker can help you navigate the increasingly complex market, ensuring you are left with the right mortgage for you.