October 2016 the Ministry of Finance passed rules which are still having effect one year later. Higher qualification 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 who have less than 20% down and qualify at the Bank of Canada Benchmark rate. The current benchmark rate is 4.89%. Clients who don’t qualify for mortgage insurance are basically everyone else. People with more than 20% down payment and people who have built up more than 20% equity in their homes, don’t qualify for mortgage insurance. It will be clients such as these which will be impacted by the mortgage rule changes coming.
The biggest difference we are seeing is two levels of rate offerings. People who qualify for mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. People who don’t qualify, cost the banks more to offer mortgages due to the new capital requirements and are offered a higher rate to off-set that cost.
But even more alarming, rumblings about another round of mortgage rule changes coming. People who have been disciplined in saving or building equity will need to qualify at 2.00% higher than what they receive from their lender.
In the first round of changes in 2016 we 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.
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?
These new qualification rules are intended to protect us from higher rates when our current terms come to an end.
***This ariticle was written by Kristin Woolard part of DLC National bassed in Port Coquitlam, B.C.
The impact of mortgage rule changes coming January 1, 2018 will be felt by everyone. My word of advice to anyone contemplating a refinance to meet current goals or planning on purchasing? Contact me today to find out what your best options are before your window of opportunity is closed.