MORTGAGE Lending rules as of October 17/16 The federal finance minister recently announced new guidelines for Banks & lenders. As of Oct 17/16, any bank granting mortgage financing will now have to have the Buyer qualify at the Banks posted 5 year rate ( currently hovering approx at 4.64%) on mortgage that require CMHC insurance or any of their competitors! Prior to Oct 17th, any Buyer who was obtaining a mortgage with 5-19% down payment was able to qualify at the lenders discounted rate of approx 2.35-2.4%.
What does this mean to Buyer's? With these changes to mortgage lending it will reduce the Buyer's mortgage limits! As an example if a couple are purchasing a home and their annual income is $100,000. With a 5% down payment and good credit rating their maximum mortgage lending amount was $481,000 however now with the new guidelines the Buyers mortgage lending limit will be reduced to $422,000. In this example the Buyer loses approx $80,000 spending capability To be clear the Buyer will still be able to negotiate that interest rate to the 2.35 to 2.4% with their bank, however they would have had to qualify at the higher rate to be able to obtain the mortgage!
What will this mean for Sellers? It's predicted with these changes to guidelines that approx 15-20% of Buyer's will drop off and out of the Buying process which ultimately will put even more stress on home prices and prices will continue to drop as a reduction of Buyers in the market place. What happens to my mortgage upon renewal of my existing mortgage? Provided the mortgage payments have been kept current and paid on time, the banks are pretty much forced to renew that existing mortgage at whatever rate can be negotiated, however if payments have been late and the Bank decides that the mortgagee has become a high risk, they can ask for full payment of their mortgage at the expiration of the mortgage term! This can be a harsh reality to some if this happens as the applicant would than have to reapply to a different mortgage company and yes you guessed it, that new mortgage company would be forced to gave the applicant qualify for the mortgage under the existing mortgage guidelines by qualifying at whatever that posted 5 year rate will be! Moral of the storey -be kind to your banker!
My prediction is that I believe we will see far less customers changing banks upon maturity of existing mortgages especially if the applicant is unable to qualify under these new mortgage lending rules. Plus it is possible for those that are not able to transfer their mortgages over to another lender, where does that leave the customer at renewal time to be able to negotiate a better mortgage rate? My guess is that people will need to maintain a good relationship with their banks, and keep payments current, otherwise it could cause a bit if stress down the road upon mortgage maturity of their existing g mortgage! Will this be good for Buyers & Sellers long term? The answer to that question is YES! This change will reduce the risk of people loosing their homes to foreclosure as that cushion of approx 2.4% will have been built into the qualification process when mortgage was initially placed, therefore in the event of an increase of interest rates, people should be covered once their mortgage term matures!
Should you have any questions or concerns, please reach out to Cam Bird at 306-221-0654 or firstname.lastname@example.org or post your message below!
Thank you for reading!