5 November 2012

After a few controversial issues were cleared final set of rules to be implemented was announced on the same day with new mortgage rules. Here is important to clarify that OSFI overlooks only federally regulated financial institutions (like Big 6 Banks), while some small lenders and credit unions, for example, still have some flexibility.

Typical year end for most banks is Oct 31, so many recommendations were to be implemented by this day and that is why November 1, 2012 got its unofficial name as “B-20 Day” among mortgage industry professionals.

So, what’s All The Buzz about? Below are the major changes and our comments in italic:

1.    Reduction in LTV on Home Equity Line of Credit from 80% to 65%.
The Loan-to-Value (LTV) ratio on the Home Equity Line of Credit (HELOC) cannot exceed 65% of the fair market value of the property being financed.

Note: We still can do combination of HELOC and mortgage up to 80%

2.    Cash back can no longer be applied to down payment.
Given that Guideline B-20 prevents buyers from using the cash refund obtained from the lender as adown payment when purchasing a property, clients must make sure they provide a down paymentthat stems from a source other than the Cash Back program.

Note: We are not big fans of cash-back mortgages, however if it’s absolutely necessary we still have non-federally regulated lenders who can provide borrowers with cash-back for down payment.

3.    Qualifying Rate  – all fixed term deals that have less than 5 years term and Variable deals need to be qualified using the greater of the Bank of Canada Mortgage QualifyingRate (5.24% as of today) or contract rate, Now effective on High Ratio and Conventional deals.

Note: This is a big change for conventional deals and will definitely have negative impact on buying power (less mortgage for your income). We still have some lenders using lower rate to qualify conventional deal, however situation might change very quickly.

4.    Equity Lending Changes – most lenders have imposed much straighter rules on equity programs, including min 35% down payment, not available for salaried applicants, confirmation of active business etc.

Note: No doubt that its getting tougher for self-employed without traditional income confirmation to get a mortgage, however if you are strong self-employed or business owner we still have lenders who can approve your mortgage request based on Gross income, spotless credit and common sense with as little as 10% down payment!

5.    Small changes, however can add up and make it harder to qualify:
a.    Heating Costs – now it will depends on property size (before most lenders accept $75-$100/m for a qualification purposes)
b.    Condo Fees – some lenders are now using 100% of condo fee for qualification (50% were used for years until Nov 01, 2012)
c.    3% of the limit on all non-mortgage liabilities (even with $0 balance) are now used to qualify your mortgage application – TDS (some lenders were using just minimum payment before Nov 01,2012)

Note: Above rules might vary from lender to lender, that is why its extremely important to consult a mortgage professional who have access to many lenders and getting regular updates on their guidelines.

If you are self-employed and still confuse with the minimum amount of down payment – don’t be! Call your mortgage broker and find out how you can buy with as low as 10%!