Navigating the New Mortgage Landscape
The Department of Finance, OSFI, CMHC, and the Bank of Canada all work to regulate the housing market, tighten up lending policies, temper overvaluation in major markets, and set higher standards for borrower qualification. While these sound like positive developments, there is well-placed concern about whether the recent changes to the mortgage industry penalize ordinary, low-risk families with unnecessarily high borrowing costs.
If you’re planning to buy a home, you may be wondering how the recent changes to the mortgage industry will affect you.
Understanding the Mortgage Changes
First things first, what are the recent changes to the landscape? Last fall, the Department of Finance announced new regulations intending to stabilize the housing market and balance risk for lenders. The changes include:
- Applying a Stress Test to All Insured Mortgages: homebuyers must qualify at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate (currently 4.64%) based on max gross debt service ratio of 39% and total debt service ratio of 44%
- Low-ratio insured mortgages must meet the same eligibility criteria as high-ratio insured mortgages
- Changes to principal residence exemption for income tax
In early 2017, the CMHC announced an increase to mortgage insurance premiums, effective March 17, 2017. CMHC is responsible for approximately 50% of insured mortgages in Canada.
While the changes have good intentions, these stricter qualification standards and higher premiums place an added burden on ordinary families hopeful of one day owning a home. Even qualified borrowers with high credit scores, 20% down payment, steady employment, and healthy GDS/TDS ratios will now have to pay more for a mortgage.
L-R: Gerard Deltell, Standing Committee on Finance; Faye Walsh,
Mortgage Agent; Carla Gervais, Mortgage Broker, The Mortgage
Advisors; Gord Brown, Conservative Whip and MP;
Corinna Smith-Gatcke, Mortgage Agent, The Mortgage Advisors
Licensed mortgage broker Carla Gervais and her colleague from VERICO The Mortgage Advisors visited Parliament Hill on December 8, 2016, to air their concerns about the new mortgage regulations. Key messages included the impact of the changes on first-time home buyers, small communities, and borrowers looking to refinance. “It was a very productive meeting,” says Gervais. “They listened to our concerns, asked questions, took notes and walked away with our prepared messages.” Since then the concerns have been raised with the Standing Committee on Finance and Mortgage Brokers as well as our National Association Mortgage Professionals Canada continue to advocate for fairer lending conditions for middle-class families.
What Does This Mean for Home Buyers?
If you plan to buy a home in the near future, mortgage brokers are advising purchasers to act quickly. “It’s still a good time to get into the market before the increase in premiums,” says Gervais. “Rates for insured mortgages are still very competitive. Getting an approval with an offer before the deadline will have significant savings before the changes take place.”