More mortgage changes

Most are now aware of the insured mortgage rule changes that came into effect on Oct. 17, which essentially reduces your buying power if you require an insured mortgage.

But there's more.

A second mortgage rule change becomes effective Nov.30 and this will have consequences for certain borrowers and limit the options that are available for refinancing to take advantage of the equity you have in a property.

This second rule change eliminates mortgage insurance for certain categories of mortgages.

There will be fewer options and most likely at higher rates than the lowest rates available at the time as this change may eliminate the current competition that we currently have in our mortgage market.

This low-ratio portfolio insurance is used by many lenders. The cost of the insurance is not passed along to the consumer, but it enables lenders to reduce securitization costs and lower their capital requirements so it’s worth it for a lender to cover the cost of this coverage.

These low-ratio mortgages are approximately 35 per cent of the insured mortgages outstanding in Canada. Most borrowers who have low-ratio insured mortgages don’t even know that their mortgage is insured.

Since mortgages with this insurance can be sold to investors, it reduces the amount of capital lenders must set aside for each mortgage, thus reducing their cost of funds.

This has allowed competition in the mortgage market and lender options beyond the big banks for consumers.

Many consumers are going to be negatively affected by these changes.

Here is a summary of the low-ratio insured mortgage changes that will come into effect on November 30, 2016.

• Refinances – Before Nov. 30 allowed; after Nov. 30 not allowed
• Rental Properties – Before Nov. 30 allowed; after Nov. 30 not allowed
• Mortgages over $1 million – Before Nov. 30 allowed; after Nov. 30 not allowed
• Stated Income – Before Nov. 30 allowed; after Nov. 30 not allowed
• Maximum Amortization – Before Nov. 30, maximum 35 years after Nov. 30, maximum 25 years

The result of the changes will be fewer options available for consumers and higher interest rates. We are already seeing lenders implementing surcharges for these categories of mortgages and even some products being eliminated.

If you are self-employed, looking to purchase a rental property, need to carry a larger mortgage or hoping to refinance your current mortgage for a debt consolidation or to access equity etc., after Nov. 30, you are going to have limited options available.

If you are considering refinancing your mortgage for any reason, are self-employed or want to purchase a rental property, start the process before Nov. 15.

That will allow you to take advantage of the current underwriting guidelines for insured mortgages and give sufficient time to complete it before the deadline.

There are many more options available now than there will be after Nov. 30.

If you have any questions about these new mortgage rule changes or want to discuss your options, please give me a call at 888-561-2679 or email [email protected]. 

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.