Not sure how many people know but the same day our Finance Minister, Jim Flaherty, came out with the latest changes to mortgage rules for high ratio mortgages the OFSI (Office of the Superintendent of Financial Institutions of Canada) came out with it's final recommendations and guidelines for their changes. These are important changes to be aware of and it's been reported that they may come into effect as early as October 31st. That's only a few months away.
The changes are as follows:
•HELOCs (Home Equity Lines of Credit) The maximum loan to value will drop from 80% to 65% of your current home value. That will sting borrowers who leverage HELOCs for productive purposes (e.g., as substitutes for open mortgages, or as a low-cost borrowing source for income-generating investments or small business). However, lenders can still provide a 15% amortizing mortgage on top of a HELOC, for 80% loan-to-value total. OSFI has stated that existing HELOCs will not be affected, but future offerings will be.
•Qualifying Rates: The qualifying rate is being tightened for conventional mortgages. For variable rates and fixed terms less than five years, it will be “the greater of the contractual mortgage rate or five year benchmark rate published by the Bank of Canada.” This will push a small number of borrowers into 5-year fixed mortgages because they won't qualify for shorter terms.
•Stated Income: Going forward, all self-employed borrowers must provide “reasonable” income verification (e.g., a Notice of Assessment). Most lenders already have such policies. It appears that true “no-income documentation” mortgages are officially a thing of the past at mainstream lenders.
•Down Payments: “Cash back should not be considered part of the down payment,” says OFSI. This effectively eliminates 100% financing, and is one of the most common sense guidelines of them all.
With all these changes it can be hard for anyone to keep them all straight or to know exactly what they mean. Your Mortgage Advisor should be helping you making sense of them. If you have any questions regarding these changes or the ones the Government of Canada made recently please feel free to contact me anytime.
Tony Marchigiano | Mortgage Specialist | Royal Bank of Canada
T. 604-505-7109 | F. 778-737-0054