Well the new mortgage rules are now in effect and it has been a crazy time leading up to this. The lenders and insurers have been inundated with deals under the old rules and the times to get an approval have definitely been challenged. While we where getting same day approvals before the changes we are looking at 2 to 3 days at present. This is improving daily though.
So what are the new rules? Basically it effects the amortization and the debt ratios we are allowed to use. We are only allowed to use a 25 year amortization on any new high ratio mortgages moving forward (above 80% loan to value). Also on a refinance we have moved from 85% loan to value to a maximum of 80% loan to value. The GDS/TDS have gone to 35/42 on beacon scores below 680 and 39/44 on any beacon scores above 680. This will impact the refinance market greatly and you are now limited to the amount of equity you can pull out of your home for investing, renovating or debt consolidation. For example if you purchased a home 5 years ago for say 150k and put 5% down you would have started with a mortgage amount of about $146988 (includes insurer premium and using a rate of 3.39%). You where probably in a 35 year amortization which means your balance after 5 years would be about $134994. Now in order to do a refinance in today’s market your property would have to be worth about 170k and at 80% you would just have enough to pay out the mortgage but no extra funds for renovations, investments or debt consolidation. Also your new mortgage would have a maximum of 25 year amortization so even if you got a better rate your payments are going to increase. Now a 170k value would probably be close to the top end depending on area you live in. The only way to do it is a switch to a new lender with no new monies advanced. You could possibly switch to a different lender for a better rate and keep the same terms and conditions as your current mortgage. You would be able to stay at 30 year amortization but your rate would be less and there fore you payments could potentially be a little less also.
Now lets look at qualifying for a mortgage today and compare this to the old rules to see the differences. Lets use a client who earns 40k per year in income. They have a car loan and small credit card that equates to $400/month in payments. We will put in a property tax amount of $2800/year and a heating allowance payment of $75 per month. Under the old rules you would qualify for a mortgage amount of around 147k which equates to a purchase price of about 155k with 5% down. Under the new rules you are now down to a mortgage amount of about 131k or a purchase price around 138k. As you see almost a 10k difference which is a lot when purchasing a home.
There are still a lot of options and rates are still fantastic but you must ensure you meet with someone and discuss all your options in order to make an informed decision. Regarding the refinance market we can still do a cash back program and get 85% of your homes value. Being in Atlantic Canada there are still great homes that are affordable. At the time this was written there are brand new semi-detached homes available in Moncton for under 150k. The majority of first time home buyers would probably be in this price range and still have a lot of available homes to choose from.
The rates have dropped again so its still a great time to buy. Meet with a professional to get all your questions answered and get pre-qualified with a rate lock.
Give me a call and we will go through the process together.
As always comments and suggestions are encouraged and appreciated.
Eric Gall is the owner of Avanti Mortgages (operating as a mortgage specialist for TMG Atlantic). If you are purchasing, refinancing or renewing your mortgage contact Eric or check out his website and apply online.