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!