Debra Williams BBA
New mortgage rules shouldn’t hurt Canadian homebuyersIn case you haven’t heard, the regulatory door is closing fast on 40-year and no downpayment mortgages in Canada. Pretty soon, you’ll also need a minimum downpayment of 5%, maximum 35-year amortization, and a reasonable credit score… if you want to get mortgage insurance, that is.
When the finance ministry made the announcement of some changes to the rules for government guaranteed mortgages – with a deadline this fall – a handful of banks and lenders shut the door on their 40-year and no downpayment mortgages effective immediately, while others will do the same closer to the October 15 deadline. The announced changes will primarily affect first-time homebuyers, and will help ensure they take on a reasonable amount of debt.
It wasn’t surprising news for anyone in the industry, although we aren’t facing the same mortgage crisis that is being experienced in the U.S. Our fundamentals are still good, and our lending practices have always been more prudent than south of the border. But the finance department wants to make sure that the mortgage industry moves away from aggressive mortgage lending, even though mortgage defaults continue to be very low.
But let’s look at the good news part of the announcement, too. Firstly, the new mortgage rules – including the end of the 40-year mortgage – are designed to maintain what is already a healthy housing market here. And the move should also strengthen the mortgage-backed bond, which is a key source of low-cost funding for Canadian mortgages.
There will only be a small impact on those homebuyers who were relying on the 40-year amortization – the difference is only about $50 in the monthly payment for a 35-year mortgage, versus a 40-year, assuming a $240,000 mortgage at 5.5%.
Some of the other new mortgage rules will create a few wrinkles that homebuyers should discuss with their mortgage planners. Three changes in particular will bear watching: the 5% minimum downpayment, the tougher credit standards, and some new documentation requirements.
What do the new mortgage rules mean for the average homebuyer? Here are a few things that homebuyers should keep in mind for the next few months:
1. Check your preapproval! If you’re a prospective homebuyer with a pre-approved mortgage, get in touch with your mortgage planner to find out if you are affected by the new mortgage rules. If your preapproval is with a major bank and is affected, this may be a good time to visit an independent mortgage planner, who has access to many lenders to help you shop around.
2. Boost your credit score. If you’re thinking about buying a home in the next year, get talking to a mortgage planner now. An experienced planner can help you improve your credit rating. With the right credit-wise moves, you can raise your credit score in only a few months. The sooner you get started, the better, of course.
3. Get a move on. The October 15 deadline for the new rules is approaching. If you’re worried about your credit, your downpayment or if you’re self-employed, make an appointment with a mortgage planner to look at what mortgage options are available to you right now. An independent mortgage planner can help you put together a mortgage prior to the October deadline, but you’ll want to get started right away. And keep in mind that the mortgage landscape continues to frequently change, which is more reason to seek out a qualified mortgage planner who understands the implications of these changes and how they can impact your mortgage plan.
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