Paula Siemens wrote in her March 8 Newsletter:
The Federal Government announced that effective April 19th significant changes will take place to mortgage qualification. Some of these changes have been published, while others are being slid into effect without the publics' knowledge. The changes being made are:
All variable rate clients and anyone taking less than a 5 yr fixed term must qualify at the "posted rate". Until this morning no one knew what would determine "posted rate"- it has now been announced that the Bank of Canada will announce every Monday morning.
Investors looking to purchase a rental property will now have to put 20% down - however the unannounced aspect of this policy change is that CMHC is moving to a new policy that states any applicant with an investment property or basements suite will only be allowed to use 50% of the rental income and have that income added to their employment income for qualification. The problem this poses is twofold:
Many existing borrowers have been qualified using a rental offset; ie: using 50-80% direct deduction of the rental income from the mortgage payment.
What happens when these mortgages come due? Can the borrower still qualify for the mortgage loans that they have in place??
What happens to the lending community? Many discount lenders are required to obtain CM! HC insurance on all of their mortgages, even if the loan is less than 8! 0%. (The lender pays for the insurance premium behind the scenes.) If the borrower no longer qualifies for the mortgage, can these lenders offer a renewal agreement? These lenders might also be put put of business, leaving only the major banks and credit unions. 20 years ago, before these lenders came into the picture every borrower paid the rate offered by their bank, and that rate was price fixed by the banks. The end result of this CMHC policy could really change the landscape to our lending community and competition in the lending market.
The broker community is working with CMHC to lessen these proposed changes so that home ownership remains affordable for Canadians, but like most decisions that CMHC makes, it may be too late.
For more information
Paula Siemens -AMP
INVIS - SIEMENS GROUP
902-777 w. Broadway Ave.
Vancouver, BC V5Z 4J7