Blog Post

More Changes to Mortgage Qualification on the Horizon?

Katherine Martin • Aug 08, 2016

Given the current economic environment in Canada, with record levels of household indebtedness and growing risks and vulnerabilities in some housing markets, OSFI’s supervisory scrutiny in the area of mortgage underwriting will continue.” This was included in Reinforcing Prudent Residential Mortgage Risk Management published early July by the Office of the Superintendent of Financial Institutions (OSFI).

The purpose of this nice and tidy piece of government correspondence is to inform the public that OSFI will be upping their game, paying closer attention to mortgage underwriting policies. And although no hard and fast rule changes were announced, an announcement of “hey, we are paying really close attention here” is typically not made unless there has been at least some thought about what the next steps might be (if required).

So let’s take a look at some of the potential changes the government could make to mortgage qualification.

Qualifying All Terms at the Benchmark Rate

As it stands right now, variable rate mortgages and fixed rate mortgages with terms of less than five years are qualified using the benchmark rate. The benchmark rate is set higher than the actual contract rate and is used to “stress test” mortgage applications.

In our current low interest rate environment, many Canadians see the five year fixed mortgage as a good choice simply because it qualifies using the contract rate instead of the benchmark rate. This means using the five year rate, borrowers can qualify for a lot more house compared to a shorter fixed term or variable rate mortgage.

Forcing all mortgages to be qualified at the benchmark rate could be on the horizon and would most likely lessen the appeal of the five year fixed rate.

Increasing the Benchmark Rate

If the goal is to tighten mortgage qualification, a simple way to do that would be to increase the benchmark slowly but surely. The higher the qualifying rate, the less you qualify for. Plain and simple. However as this might have other economic ramifications, we’ll just have to wait and see if this is in the government playbook.

Lower Debt Service Ratios

In order to qualify for a mortgage, you take your principal, interest, taxes, and heat and divide by your annual income, this is called your gross debt service ratio or GDS. When you add your other debt obligations to this calculation, it becomes your total debt service ratio or TDS.

Currently, for insured mortgages in Canada, your maximum GDS is limited to 39% while your TDS is capped at 42%.

A simple tweak to these numbers would have a pretty significant impact.

A Flat 10% Down Payment

If you remember, back in February of 2016, the government increased the minimum down payment amount. When purchasing a property, the first $500,000 requires a minimum of 5% down, whereas the portion of the purchase price above $500,000 now requires a 10% down payment.

Seeing as though the government just made these changes, it doesn’t seem likely that they would scrap them and simply introduce a flat 10% downpayment across the board, but you never know!

Regardless of what future changes are made to mortgage qualifications (if any) to address “our current economic environment”, you can count on us to make sure you are kept in the know.

If you need anything, please contact me, I’d love to hear from you!

This article originally appeared in the August 2016 Dominion Lending Centres Newsletter.

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Mail

Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Construction Assignments

By Katherine Martin • 15 May, 2024

One of the benefits of working with an independent mortgage professional is having lots of great financing options! Rather than dealing with a single lender with one set of products, independent mortgage professionals work with multiple lenders who offer a wide selection of mortgage financing options that provide more choice. Increased choice in mortgage products is beneficial when your situation isn’t “normal,” or you don’t quite fit the profile of a standard buyer. Purchasing a new construction home through an assignment contract would be a great example of this. Purchasing a new construction home through an assignment contract can be tricky as not every lender wants the added perceived risk of dealing with this type of transaction. Most of these lenders won’t come out and say it; instead, they add a significant list of qualifying conditions to make the process harder. The good news is, there are lenders available exclusively through the broker channel that have favourable policies for assignment purchases. Here are some of the highlights: All standard purchase qualifications apply, including applicable income verification, established credit, and required downpayment Assignments can be at the original purchase price or current market value Minimum 620 beacon score with no previous bankruptcies or consumer proposals The full downpayment must come from the purchaser and not include any incentives from the seller. As far as documentation goes, the lender will want to see the original purchase agreement signed by all parties, the MLS listing, the assignment agreement signed by the builder, the original purchaser, and the new buyer. The lender will also want to see the side agreement between the original purchaser and the new buyer, including the amended purchase price. The lender will want to substantiate the value through a full appraisal. Now, as every situation is different, this list of conditions is in no way exhaustive but meant to show that assigning a new construction purchase contract is doable while highlighting some of the terms necessary to secure financing. If you’re looking to purchase new construction through an assignment contract, or if you’d like to discuss purchasing a home through traditional means, please connect anytime! It would be a pleasure to outline the mortgage products on the market that won’t limit your financing options!

Understanding a Spousal Buyout Mortgage

By Katherine Martin • 08 May, 2024

If you’re going through or considering a divorce or separation, you might not be aware that there are mortgage products designed to allow you to refinance your property and buy out your ex-spouse. If you’re like most people, your property is your most significant asset and is where most of your equity is tied up. If this is the case, it’s possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program. It’s called the spousal buyout program. Here are some of the common questions people have about the program. Is a finalized separation agreement required? Yes. To qualify, you’ll need to provide the lender with a copy of the signed separation agreement, which clearly outlines asset allocation. Can the net proceeds be used for home renovations or pay off loans? No. The net proceeds can only buy out the other owner’s share of equity and/or pay off joint debt as explicitly agreed upon in the finalized separation agreement. What is the maximum amount that you can access through the program? The maximum equity you can withdraw is the amount agreed upon in the separation agreement to buy out the other owner’s share of the property and/or retire joint debts (if any), not exceeding 95% loan to value. What is the maximum permitted loan to value? The maximum loan to value is the lesser of 95% or the remaining mortgage + the equity required to buy out other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV. The property must be the primary owner-occupied residence. Do all parties have to be on title? Yes. All parties to the transaction have to be current registered owners on title. Your solicitor will be required to confirm this with a title search. Do the parties have to be a married or common-law couple? No. Not only will the spousal buyout program support married and common-law couples who are divorcing or separating, but it’s also designed for friends or siblings who need an exit from a mortgage. The lender can consider this on an exception basis with insurer approval. In this case, as there won’t be a separation agreement, a standard clause will need to be included in the purchase contract to outline the buyout. Is a full appraisal required? Yes. When considering this type of mortgage, a physical appraisal of the property is required as part of the necessary documents to finalize the transaction. While this is a good start to answering some of the questions you might have about getting a mortgage to help you through a marital breakdown, it’s certainly not comprehensive. When you work with an independent mortgage professional, not only do you get a choice between lenders and considerably more mortgage options, but you get the unbiased mortgage advice to ensure you understand all your options and get the right mortgage for you. Please connect anytime; it would be a pleasure to discuss your needs directly and provide you with options to help you secure the best mortgage financing available. Also, please be assured that all communication will be held in the strictest of confidence.