With extremely low interest rates and little likelihood of a rate hike anytime soon, we all knew that the Federal Government would be tinkering with mortgage insurance to stem the rising house prices in Canada. The latest round of rule changes scheduled to take place on or after June 30th, 2015 target Canadians who are buying homes with less than 20% down and who might not be able to prove their income.
Here’s what we are being told:
- Five Year Fixed Rate Mortgages will be harder to qualify for. Currently any borrower looking to be approved for a 5 year fixed rate mortgage is able to use the rate they are obtaining on their mortgage (right now between 2.45% and 2.65%) and not the the Benchmark Qualifying Rate (4.64%). Up until this point Canadians with lower incomes were able to use the discounted 5 year fixed rates to help them qualify for larger mortgage amounts, while those looking for a lower variable rate mortgage were subjected to qualifying with the Benchmark Rate in order to prove they could with stand any price shocks. Applying the benchmark rate to all borrowers will certainly push some borrowers out of the market.
- No More Cash Back Mortgages. The Federal Government managed to kill these products at the major banks. But a few credit unions were still offering decent cash back mortgages. As of June 30th, 2015 these will be gone. Expect some lenders to offer lines of credit to help people finance their down payments, but rest assured these will not be easy to qualify for.
- You better be able to prove your Income. Lenders will be officially required to obtain third party verification of income for all borrowers including employment status and income history, although CMHC hasn’t been offering a No Income Qualifying Product (NIQ) for some time. This should telegraph to the market that self-employed clients who can’t prove their income are in for a tougher road ahead when trying to qualify for their next mortgage.
These changes will have a direct impact on how many Canadians are able to qualify for their mortgages. If you or someone you know is trying to navigate the mortgage market it might make sense to speak to someone at MorCan Direct. Whether you plan on buying before or after June 30th, 2015, it is important to get Sound, Unbiased Mortgage Advice from a professional. Right now there are variable rate mortgages as low as 1.99%, make sure your Bank isn’t trying to sell you on a product that isn’t right for you.