New Mortgage Rules October 2016

(October 04, 2016 )

I just received this across my desk from a mortgage broker I have worked with in the past. It helped me to clarify some of the new changes ahead, so hopefully it does the same for you. If you are looking for a great mortgage broker Zaheed is the guy to talk to. He works hard to stay on top of changing rules in the industry, he can tailor a mortgage to suit your needs, and he works for you so you get the best rate (not the banks). Here is the info and some recommended 'actions to take' if your in the market now, or thinking of buying a place soon....


You may have heard there was some major mortgage news that came out Oct 3, 2017. While some of it may get lost in all the lingo here is what you need to know:

Buyers with less than a 20% down payment:

As of October 17th, all mortgages regardless of the term will need to be qualified at 4.64% ( current benchmark rate) Why? The government wants to allow lending up to what a client can afford if rates were at 4.64% - even if you are only paying 2.39% for their mortgage. As an example, a client of mine with 10% down was pre-approved for a  5 year fixed rate at 2.39% for a mortgage amount of $400,000. With the new change, this same client will keep his rate of 2.39% but can only qualify for $320,000 based on a rate of 4.64%. That is a 20% decrease in what they can afford! Prior to the news the client was able to qualify at their approval rate of 2.39% on a 5 year fixed term. 

1-4 year terms, and variable rate terms have always qualified at 4.64%, now we add in the 5 year term that most buyers with less than 20% down take. 

Clients who already have accepted offers with a firm mortgage approval prior to Oct 17th are exempt from this as long as the completion date is prior to March 1, 2017.  Buyers still have to pay the insurance premiums and they have not changed. Max 25 year amortization still remains in effect.

- Action to take: 
  • If you have an accepted offer, make sure you have a mortgage approval prior to Oct 17th
  • If you are in the market and shopping, try to get your offer accepted prior to Oct 17th so that you can still qualify as per current guidelines. The mortgage approval would need to be submitted prior to this day which is a Monday so likely by Friday October 14th.
  • If you are shopping and likely won’t have an accepted offer by Oct 17th, call me to find out what they qualify for based on the new change.
  • Note that every situation is different and the changes may have no effect on buyers depending on income etc, but please double check with me.   

Buyers with 20% or more down:

Changes are coming as of November 30th. Still waiting on clarification ( announcement was not laid out clearly ) but there is speculation that similar qualifying rules will apply at 4.64% ( current benchmark rate). There is also talk of eliminating the 30 and 35 year amortizations meaning a cap at 25 years, which will significantly reduce the amount a buyer will qualify for. Implementation of minimum credit score requirements. NOTE: These changes may only apply with certain lenders given on how they handle insurance requirements behind the scenes. I will update once info is available. Banks are treated differently than Credit Unions and monoline lenders like First National, Street Capital, Merix, MCAP, RMG etc.

Action to take:   
  • If you have an accepted offer, make sure you have a mortgage approval prior to Nov 30th.
  • If you are in the market and shopping, try to get your offer accepted prior to Nov 30th so that you can still qualify as per current guidelines.
  • If you are shopping and likely won’t have an accepted offer by Nov 30th, call me to find out what you qualify for based on the new change.
  • Note that every situation is different and the changes may have no effect on buyers depending on income etc, but please double check with me.    

Pre-sales less than 20% down by completion date

Unless your mortgage was submitted to an insurer prior to Oct 3, 2017 you would have to have it sent in by Oct 17th and have the sale complete by March 1, 2017 to ensure current guidelines are used. If a completion date is past March 1, 2017, your mortgage would have had to been submitted for an approval prior to Oct 3rd, 2017. As of now, new guidelines will apply in this case. Pre-approvals do not protect you from the above two points unless it had been sent to an insurer by whomever did your pre-approval. Note, many pre-sale bank reps do not take these steps given the closing date is so far out.

Action to take:
  • If you or your developer are confident that your sale will complete prior to March 1, 2017 get in touch with me ASAP and we can submit for an approval to have the insurance in place. Keep in mind that the deadline is Oct 17th but there will be a mad rush to get deals in prior and lender will also be backed up. I am working extended hours to accommodate any deals that fall into this scenario. If your completion date is going to be after March 1, 2017 you can get in touch with me to find out what you will qualify for as you will need to follow the new guidelines. Note that every situation is different and the changes may have no effect on buyers depending on income etc, but please double check with me. 

Pre-sales with 20% or more down by completion date

Unless your mortgage was submitted to an insurer prior to Oct 3, 2017 you would have to have it sent in and approved by Nov 30th, 2017 to ensure current guidelines are used. After Nov 30th, you will have to abide by the new guidelines that will be clarified in the coming days (waiting to see which lenders this includes). Pre-approvals do not protect you from the above two points unless it had been sent in as an approval by whomever did your pre-approval. Note, many pre-sale bank reps usually do not take these steps given the closing date is so far out.

Actions to take: 
  • Get your deal submitted for an approval prior to Nov 30th, 2017. I can hold a rate for 4 months but more importantly have the deal submitted prior to changes. If your completion is after 4 months from submission we can look at extending the date but you would have to go with rates at the time or in the window four months prior to completion. Main point here is getting it in the system prior to changes.
  • Note that every situation is different and the changes may have no effect on buyers depending on income etc, but please double check with me.5.       

To  summarize:

  • Pending further clarification, having a 20% down payment may not give clients any benefit in terms of qualifying for a mortgage compared to having less than 20% down - aside from not having to pay the insurance premiums. Previously they could qualify with a 30 or even 35 year amortization which would give them more room in terms of spending. Also, they didn’t need to qualify at 4.64% for a 5 year fixed rate or in many cases even for a variable rate. Hoping the clarification over the coming days will give us some good news on this one! Pre-approvals are not guarantees that you are exempt from these changes. If you have any questions or need any further info please get in touch as I am always here to help! I am working extended hours to help any way I can. If you need a quick turnaround on an approval to meet this deadline or find out what you qualify for post Oct 17th please give me a call. 
Cheers,

Zaheed Valli-Hasham, BBA, MBI
Mortgage Planner
2015 DLC Gold Award Recipient
Direct Line:    1.604.671.5593
E-mail:          zaheed@citywidemortgage.ca