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New Mortgage Rules - June 27, 2012

NOTE: CMHC Guideline changes (for mortgages over 80% financing):
Maximum amortization to shrink from 30 years to 25 years. This will increase mortgage payments by about 12% on average. We suspect there is a good chance that major banks will soon announce that they will be changing the amortizations to 25 years for conventional deals, too.
EXAMPLE: A mortgage of $250,000 with a current 30 year amortization at 3.09% 5-year fixed rate = $1095 monthly payment. A mortgage of $250,000 with the new 25 year amortization at 3.09% 5-year fixed rate = $1228 monthly payment Difference of $133 per month. A $500,000 mortgage ... difference $270 per month.
Refinances restricted to 80% financing (down from 85%).
Limit debt servicing for GDS (Gross Debt service, which are all property-related expenses like mortgage payments, taxes, heating, condo fees, etc) to 39%, from 44%.
Ban mortgage insurance on properties over $1 million.
NOTE: OSFI Guidelines (applicable to all federally regulated lenders):
Home Equity Line of Credits reduced to 65%, although it appears as though an additional 15% is allowed (to 80%) if that 15% is amortized.
Banks required to qualify all variable and terms of less than 5 years at the Bank of Canada 5-year benchmark rate (typically RBC's 5yr posted rate). Currently many banks will qualify shorter terms at the actual rate if the deal is conventional (more than 20% down payment).
All "Stated Income" borrowers must provide reasonable income verification like a Notice of Assessment. No income documentation deals are likely to disappear (although many already have).
Cashback will not be allowed to be used towards down payment. Currently a few banks allow 5% cashback to be used towards down payment (making it effectively a $0-down deal). Of all of the rules put forth, this one makes the most sense in today's economy.
CIBC Firstline closing doors as of July 31st:
As of July 31st Firstline will no longer be accepting new applications. They have been one of the largest lenders by market share in the broker channel for over a decade, claiming the #1 spot for most of that time. At points, Firstline was accounting for nearly 1/3rd of all broker channel deals. We will have more details in our newsletter coming out in the next few days.
Who will be affected by these new rules?
Potential homebuyers who were hoping to get a 30-year amortization to either qualify or help their payments meet their budget. Potential homebuyers hoping to get a "$0-down" deal using cashback.
Home purchasers who may be pre-approved but are pushing the limits of their borrowing power.
Purchasers in the $1million+ range with less than 20% down payment.
Self-employed borrowers may have a more difficult time getting approved.
Investors may have more difficulty cash flowing rentals if the banks change their amortizations to 25 yrs for conventional deals as well.
Borrowers/investors looking for HELOC products may find more restrictions and difficulty getting financing.
Anyone looking to refinance their properties to lower interest costs and monthly payments.
If you fit into one of the above categories, you NEED to call us!CMHC Guideline changes (for mortgages over 80% financing):
CMHC Guideline changes (for mortgages over 80% financing):

Maximum amortization to shrink from 30 years to 25 years. This will increase mortgage payments by about 12% on average. We suspect there is a good chance that major banks will soon announce that they will be changing the amortizations to 25 years for conventional deals, too.EXAMPLE: A mortgage of $250,000 with a current 30 year amortization at 3.09% 5-year fixed rate = $1095 monthly payment. A mortgage of $250,000 with the new 25 year amortization at 3.09% 5-year fixed rate = $1228 monthly payment Difference of $133 per month. A $500,000 mortgage ... difference $270 per month.
Refinances restricted to 80% financing (down from 85%).
Limit debt servicing for GDS (Gross Debt service, which are all property-related expenses like mortgage payments, taxes, heating, condo fees, etc) to 39%, from 44%.Ban mortgage insurance on properties over $1 million.
NOTE: OSFI Guidelines (applicable to all federally regulated lenders):
Home Equity Line of Credits reduced to 65%, although it appears as though an additional 15% is allowed (to 80%) if that 15% is amortized.

Banks required to qualify all variable and terms of less than 5 years at the Bank of Canada 5-year benchmark rate (typically RBC's 5yr posted rate). Currently many banks will qualify shorter terms at the actual rate if the deal is conventional (more than 20% down payment).All "Stated Income" borrowers must provide reasonable income verification like a Notice of Assessment. No income documentation deals are likely to disappear (although many already have).Cashback will not be allowed to be used towards down payment. Currently a few banks allow 5% cashback to be used towards down payment (making it effectively a $0-down deal). Of all of the rules put forth, this one makes the most sense in today's economy.
CIBC Firstline closing doors as of July 31st:

As of July 31st Firstline will no longer be accepting new applications. They have been one of the largest lenders by market share in the broker channel for over a decade, claiming the #1 spot for most of that time. At points, Firstline was accounting for nearly 1/3rd of all broker channel deals. We will have more details in our newsletter coming out in the next few days.
Who will be affected by these new rules?

Potential homebuyers who were hoping to get a 30-year amortization to either qualify or help their payments meet their budget. Potential homebuyers hoping to get a "$0-down" deal using cashback.
Home purchasers who may be pre-approved but are pushing the limits of their borrowing power.
Purchasers in the $1million+ range with less than 20% down payment.
Self-employed borrowers may have a more difficult time getting approved.
Investors may have more difficulty cash flowing rentals if the banks change their amortizations to 25 yrs for conventional deals as well.

Borrowers/investors looking for HELOC products may find more restrictions and difficulty getting financing.
--
Alexandra Axsen
Owner/Managing Broker
Lake Okanagan Realty
Tel: 250.870.2792
Alex@LakeOkanaganRealty.com 

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