The government’s new mortgage rules are coming into force this week, and whether you are applying for a new mortgage, refinancing, or still shopping for your home, you should be aware of these changes.

As of November 30, the government has set new criteria for high-ratio insurance.  Even when clients take a 5 year fixed term, they must qualify at the government prescribed rate, which is currently 4.64%.  Previous criteria still apply such as:  maximum amortization period is 25 years , the purchase price is less than $1 million, the property be owner-occupied, and the buyer must have a credit score of 600 or more.  As I have detailed in a previous post, these rules can have a huge impact on self-employed applicants and first-time buyers.

In response to the new criteria, a lot of lenders are also changing their rules on mortgages, including those that the government doesn’t have a say over. For example, the government made changes to mortgages where there is less than a 20% down payment.  However, some lenders are applying these government rules to mortgages where there is MORE than 20% down, or 20% equity, in the case of a refinance.  Although the government did not set rules for refinances, lenders have taken it upon themselves to introduce changes to this sector, greatly affecting refinance applications.

Refinance = when a client HAS a mortgage, and wants to make changes to it.  In most cases, these changes are an increase in the mortgage amount or a line of credit, which can be used for a down payment on another home, or a major renovation.

Another sector that will see changes are clients buying rental properties and vacation homes.  These applicants may need more money for the down payment, or they may be offered a shorter amortization, reducing the period from 30 years to 25 years.  This can result in higher payments, the costs of which can be difficult to cover if you are buying the property as an investment and are looking for the rent to cover expenses, such as mortgage payments.

It is important to know that lenders do not always wait for government direction, and can take it upon themselves to make rules that the government has not yet set.  Therefore, it is important you have someone on your side who not only understands the intricacies of government rules, but also knows how to work with lenders to make sure you get the mortgage that is best for you.

Call me to discuss how these rules may affect your application!

One of the biggest hurdles for home ownership is coming up with the down payment.  In high-priced markets like Vancouver, a 20% down payment isn’t always a given, and many buyers will put less money down and pay for obligatory mortgage default insurance in order to jump into the market sooner.  This insurance has allowed people to buy sooner, as prices climbed and interest rates remained steady.

The minimum down payment on homes less than $500,000 is 5%, which reduced from 10% in 1998 by the federal government, in an effort to boost the economy.  When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. The maximum value for buying a home covered by mortgage insurance is $1 million (which means if you are buying a home for $1 million or more, you must put down at least 20% and possibly more depending on the lender’s “high-end” home formula.

The insurance rate depends on how much you put down – a 5% down payment will result in a 2.75% premium, a 10% down payment will have a 2% premium, and 15% down payment will cost you 1.75% in insurance premiums.  While the amount seems small, it can add tens of thousands of dollars to your mortgage payments. And remember, even if you make a large lump sum after the mortgage closes that gives you 20% equity, you don’t get the premium back!

So, what’s happening now?

• – CMHC and the Bank of Canada have both made several announcements regarding their concern for the level of debt in Canadian households. 
• – TD and Royal Bank have announced rate increases (with more lenders possibly following suit).
• – CMHC has stated that a sharp increase in interest rates could trigger more than $1 billion in losses to the insurer ($2 billion if Canada experienced a “U.S.-style” housing correction).

These developments have now culminated in the recent announcement by Evan Siddall, chief executive of CMHC, that they may look at raising the minimum down payment for homeowners with mortgages covered by default insurance. That means that if you are planning on buying a house with only the minimum 5%, you may need to revaluate your plan.  

Interest rate hikes and increasing minimum down payments can throw a wrench in your mortgage plans.  Call me today to discuss how we can get your plan back on track, or how I can get develop a plan for you if you don’t have one yet.  Remember, my services are completely free, and can save you thousands of dollars!

Working with the right mortgage professional can save you thousands of dollars, not to mention a huge amount of stress.  I asked my clients why they confidently refer me to their friends and family, and this is what they said:

1. 1. I work directly with you and am there for you.  In addition to getting you the best mortgage package, I provide advice throughout the buying process.  Even if you are a year away from purchasing your new home, I offer advice to get you into the best position to buy your property and meet your goal. 

1. 2. You can always call me.    I understand that my clients have to make decisions when it works for them and they cannot address these financial issues during the workday.  So I make myself available to my clients pretty much 7 days a week at all hours of the day.  And if I can’t answer the phone at the moment, I always get back to them right away.  This alone relieves a huge amount of stress for clients who are in a position to make a quick decision on something that is so important in their life.

1. 3. I do what is best for my clients.  As a broker, I have many lending options that I can offer clients:  banks, mortgage companies, credit unions, etc.  They all have different requirements, and some are easier to work with than others.  I choose the lenders that will work best for my client’s situation, not for my own gain.   As a long time broker, a good part of my day is spent answering emails when clients are looking for advice, and having conversations with clients about their situations.  Many times these conversations do not translate into financial incentive for me, but it is what the client needs at the time.  I know many of us need a sounding board sometimes so I’m happy to provide sound advice to my clients whenever they need it.

1. 4. There are no surprises.  I help you make an informed decision.  The costs associated with buying are disclosed to you, and if there is anything usual, I will tell you.  I explain things plainly and give advice my clients can trust.

When you are looking for a mortgage broker, or any real estate professional, here’s what questions you should ask yourself:

1. 1. Is this person putting my needs ahead of his or her financial gains? How do I know that I can trust him or her with one of the biggest financial decisions of my life?

1. 2. Is this person providing sound and trustworthy advice? 

1. 3. Is this person knowledgeable about banking products and qualification requirements?

1. 4. Am I dealing with this person directly?  Does he or she respond in a timely manner?  Can I be confident that if my mortgage is approved and I have questions many months later, my mortgage broker will take the time to answer them?

Don’t take my word for it – see what my clients have said about me.

Call or email me today to discuss how I can get the best mortgage for your situation!

Having reflected on the last 25 years and how mortgage rules and guidelines have changed, one thing I can say that hasn’t changed is “the basis of the mortgage application.”   In short:  what’s your story???

At the end of the day, after your income documents have been reviewed and your credit has been checked, what the lender wants to know is “what’s your story?”   Remember, the person who approves your mortgage application is usually not the same person who sits down and goes over your application with you.   Typically, its another person who does not know you, and that person needs someone to explain “your story” to them.   Although your mortgage specialist will try to describe your story through your documentation, such as with your job letter, paystubs, etc, it is always best to give your mortgage specialist the details that may not appear on paper.

Some questions that may apply to you:

• Why did you take some time off work?
• Why didn’t it work out in that line of work?
• Why did you have a huge gap in income?
• Why did your income level drop so much or go up so much, in a short period of time?
• How come your credit score went down so much in a short amount of time?
• Why do you not have a lot of history on your credit?  

These are some of the things that your mortgage specialist will need to know to do a good job for you in obtaining the best mortgage package!   Help your mortgage broker help YOU!

Contact Nazarina for more information and remember, I work for YOU, not the lenders.

Today more than ever, much of the mortgage application and subsequent approval is about the paper that goes along with it!  And more often than not, I’m finding that lenders want more than just the information that pertains to your job and the property. They are also looking for statements to confirm whether you have investments or assets, such as RRSPs, RESPs, etc.  That is in addition to statements that you will need to provide to demonstrate that you have the funds for the down payment.

Lenders will typically request: 

• a recent job letter;
• a recent paystub;
• bank statements showing you have the funds for the down payment;
• mortgage statements on any properties you own, and rental agreements on any investments properties that you have;
• and of course, the property documents.

By all means, DO NOT throw away your Notice of Assessments (NOAs) from Revenue Canada.  This is your “receipt” from the government to say that they agree or have amended your report on income and taxes owed or paid.   These are important documents and should be kept for 7 years, especially if you plan to borrow money during that period.  Want to be even more efficient? Set up an account at CRA’s website so you can access this information online.  Note: it takes 2 weeks to obtain a password from CRA, so getting this done in advance is always a good idea so that you can have this information ready when you need it.

Wondering how you can prepare for your mortgage application?  Call me today to discuss how I can help you get the best mortgage for your situation!