It’s been about 2 months since the Department of Finance (DOF) announced some mortgage rule changes. Some of the rule changes I would agree as being prudent, but others just seem unnecessary in my view. I’m concerned for young families who may now have a harder time achieving their dream of home ownership. This is not a short-term concern; it is likely to affect your children and your children’s children for quite some time to come!
Many people are concerned about affordability in some Canadian markets – Vancouver and Toronto being 2 that come to mind, but the policy changes appear to be a one-size-fits-all that will have an impact to the rest of the country. These changes are not simple and the guidelines have changed significantly for the mortgage industry which will make it that more difficult for the consumer to decipher what their options are. Mortgage rates are also going to vary from product to product (ie: Principal vs Investment) – Rates will likely vary by about 25bps (0.25%) between the 2.
After 2 weeks of travel to New York and Vancouver to gain better knowledge of these changes, meeting with lenders and industry colleagues, it is apparent that there is a lot more homework required. Mortgage rates have risen recently in part due to the mortgage rule changes and in part due to the 5-Year Bond Yield rising (since the US election). Rates have risen as much as 50bps (0.50%) for some lenders and products.
Here are some important dates and changes that have occurred:
October 17: NEW Stress Test
Qualifying Rate for High Ratio (insured mortgages). The rate at which all Insured mortgages must qualify at is set at the Benchmark (BoC) rate, which today is 4.64%
November 30: Low Ratio / Conventional Mortgages
As of this date, lenders are unable to back-end insure or bulk insure mortgages below 80% LTV (loan to value). This change has increased funding costs for lenders, which means these surcharges are being passed down to the consumer in a form of rate increases.
Since November 30, lenders have announced a variety of rate surcharges based on the type of mortgage, property type and even amortization length.
Principal Property purchases will continue to receive the lowest rates in the markets, especially High Ratio (less than 20% down payments) mortgages.
Rental Properties will see a rate premium surcharge of 25bps above the principal property mortgage rates.
Amortizations above 25 years will likely also see a rate premium surcharge of 10bps.
In summary, these mortgage rule changes and rate hikes are just the beginning, and that consumers should brace themselves for greater expenses in the near future. I do expect rates to continue to push up in the coming months and into next year.
If you have questions or concerns and would like to sit down for a free no obligation meeting to discuss your situation, please call or email.