Ok, so the title is pretty grim... the reality is that on Oct.3rd 2016 the government decided to make some pretty big changes to the mortgage industry. This not only changes your ability to qualify, and how interest rates are shaped, but also increased the cost to borrow money to buy a home!
So, while most already are aware of the stress test and it's change - as a side note most agree that this was a good move - the bigger change was behind the scenes to something called "back-end" or "low-ratio" mortgage insurance. Most non-bank lenders (who provide higher flexibility, lower rates and keep your mortgage options competitive) require this insurance, it basically allows them to provide a SECURE investment to their investors!
So, you can get your mortgage from many different places however as a "qualified" buyer you in general have 3 main options, Banks (think Scotiabank or TD Bank) Credit Unions, and Mortgage Finance Companies. Because the mortgage finance companies now do not have the same ability to "insure" their mortgages we have seen a shift in the market place (some may say unfairly) which ultimately impacts YOU the consumer. Now that you have a basic understanding of who does what, here's what you need to know:
Requirements for Insurance - less than or more than 20% down:
- Mortgages for Purchase Transaction (not for re-finance)
- Owner Occupied or Second Homes (not for single unit rental)
- Purchase of a property under $1M
- Maximum Amortization - 25 Years
- Minimum Credit Score of 600
- Maximum GDS 39% Maximum TDS 44%
So, as you can see, they're eliminating a lot of common mortgage options here, including:
- Re-Finances - for debt consolidation, reno's, investment (everything) etc.
- Rental Properties (less than 2 units or more than 4)
- Properties of above $1M
- Amortization of above 25 Years
Ok ok ok, so what does this all mean to the consumer?
Comparison of Rates in New Structure
There will now basically be 3 to 5 classes of mortgages, think of it like a build your own mortgage where each option you choose adds a little extra to the rates.
So, as an example if you're putting down say 5% (anything less than 20%) and you qualify you will get THE BEST interest rate at say 2.49% (This is called an INSURED mortgage). Now, compare that to someone who is buying a home for their family with 25% down you will have a rate surplus of approximately 0.15% (Now known as INSURABLE). Let's just say for the same of conversation that this family decides they'd like to amortize this loan over 30 years instead of 25 well, now we are looking at another surplus of approximately 0.15%-0.25%.
Got it?? Don't worry, its ALOT for most to take in and even the mortgage lenders are still working on new and creative ways to provide the products you need for your purchase.
So - What's the good news!?
The good news is that YOU CAN still likely buy that home/investment property or re-finance, it will just take a bit more work and cost a slight bit more than in the past (thank your government for that one).
The GREAT news is that if you're working with a Mortgage Broker (and his pug) you are likely still able to find the same option as before because our job is to break it all down and find YOU the best option for our needs. We're working EVERY day to learn these new rules and as a result break it down for you to understand and help save you your hard earned dough!
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