Changes in the Mortgage Market

Ok, it is time that I wade into the debate and talk about the changes that came down this week.  I needed to do some reading and think about them for a couple of days.

Change 1:  You will have to qualify on the 5 year fixed rate regardless of the mortgage term. This will impact the clients who are stretching things tight, and that is not a bad thing, if clients can barely afford the purchase currently at the rates we have now, they will be in trouble when rates go up and they will go up. No one wants to be mortgage poor. When running numbers with clients I always make sure we look at options of what can happen in the future, we do “what if’s” – what if the rate is 6% in 5 years. This is where clients really need to make sure they have someone helping manage their mortgage, if you put some plans in place for the next 5 years when the mortgage renews there will be more options. The big question is what is the rate going to be – some of the lenders do not have a 5 year posted rate, so we will have to wait and see what the government is going to do – it maybe a mandated rate for example prime +2 across the board.

Change 2:  You can only refinance to 90% of the equity in your home. Again this is not a bad thing, to have to leave 10% equity inside the home is hedging your bets. When refinancing you have to look at why you are doing it and you have to have a plan. If you refinance for debt consolidation you must have a plan so you won’t be there again in a year, you need to budget and take control of what is going on. Every circumstance is different and you need to look at why you are where you are.

Change 3:  Non-owner occupied properties have to have 20% down. I understand that this has been put in place to stop the “Speculator” investor but this new rule will extremely impact all investors, not because of the 20% down payment, we have been telling clients that for years, but by the way CMHC is going to calculate the rental income. Currently we can us an 80% offset, this will be changed to a 50% add back – this refers to how lenders all rental income to be use and this will have a dramatic impact when qualify. My question, is this really necessary? Real Estate investor’s only represent roughly 4% of the market so is it really going to have an impact on the market – it may look like it but is it really?

More to come when we know more…..