Well it is official. As of November 1st, 2012 the new mortgage rules outlined in July will come into affect for all Federally Regulated financial institutions. This includes the chartered banks and the major trust companies. Although a great piece of literature to help the most chronic insomniac sleep like a log, it is critically important to understand how it affects you as a mortgage holder in Ontario.
Reduced Loan to Values for Ontario Residents
In many cases, the loan to value normal of lending to 80% has now become 65%. This is quite significant for self employed business owners and those with less than perfect credit as the rules have been changed with you as the target here. If you are applying for a home purchase or refinancing your mortgage and require a scenario where you state your income versus the traditional job letter, unless your mortgage is insured with CMHC you are now the new normal of only being allowed to finance up to 65% of the value of your home. On even a small mortgage of 250K, that is an extra $37,500 you will have to come up with to get your mortgage completed. This also hits hard with those with a credit score of less than 580 on the primary borrower. You will also be subject to the new normal of 65% thanks to your friends and mine at the Office of the Superintendent of Financial Institutions.
Do I Qualify? Interest Rates and Debt Service Changes
Up until even this year, it was common knowledge to most savvy Ontario mortgage holders that the amount of their gross income that was needed to qualify to service their mortgage debt would not affect the amount of their downpayment required. This is another area targeted by the changes in that depending on your credit rating, if your income does not service your mortgage at 39% of gross annual family income for borrowers with 680 credit scores you will also be subject to a 65% borrowing limit. It is worse for borrowers with a score less than this as the percentage goes down to 35% and you will experience the same equity discectomy or downpayment increase depending on your scenario. As for interest rates, if you choose a mortgage with a term of less than 5 years, you will have to qualify at the Bank of Canada’s rate of 5.24% as of today’s writing.
Ontario Credit Union Opportunity
One bright spot for borrowers is that not all lenders are regulated under the Federal government. Credit Unions are their respective province’s responsibility. This means that ultimately it is up to the institution itself to govern how or if they adhere to the changes above. This will become more and more important as Ontario mortgage holders come up to their maturity date from this date on. Self employed stated income, Home Equity Lines of Credit to 80%, conventional mortgages with lower qualifying interest rates, and cash back mortgage products will to a large extent not be affected with our Credit Union lending partners. As your Ontario Mortgage Broker, I work with all major Ontario Credit Unions to get you not only the best terms and conditions but inclusive of this is the interest rate secured.
Changing Times – Your Ontario Mortgage Broker
Someone once said, The more things change, the more they stay the same. As the rules affecting your mortgage change over and again, one constant remains – how important it is to have an expert representing you at the table when it comes time to negotiate the maze of complicated implications. As always, I am here to explain in easy to understand terms how the changes affect you and your family and will field your questions below.