A year of mortgage changes

2016 has definitely been a year of changes in the mortgage industry.

These changes have heads spinning as we try to understand what these changes mean for the average Canadian mortgage consumer.

It hasn’t been easy and we are still sorting through the implications, but that is a key part of my role as a mortgage broker — to ensure my clients receive the best unbiased professional advice possible to help them find their perfect mortgage.

Here’s a brief review of 2016 and a look forward to what the 2017 market might hold.

Through January and February, we saw some of the lowest interest rates in history and that trend continued until October when some significant changes occurred.

In April, we started to hear rumblings that Ficom (the Financial Institutions Commission in B.C.) was going to implement changes to improve the conflict of interest disclosure requirements for mortgage brokers.

This change will now be implemented in mid-2017 and ensures that consumers will know exactly how mortgage brokers are compensated for their work.

These new rules and the transparency will not be required for bank or credit union employees – mortgage specialists - which is unfortunate as they are commissioned based and there are potential conflicts of interest, but that is a whole other story.

(This is a good time to point out that 99 per cent of the time you can use the professional unbiased services of a mortgage broker at no cost. There is really nothing to lose and everything to gain, especially with all the recent changes that have made the sorting through of available options very complicated.)

The Canadian government announced several major changes to mortgage qualifying rules late this year including the following:

In September, OFSI (Office of the Superintendent of Financial Institutions) increased capital requirements for mortgage insurers which will be effective Jan. 1. This could potentially increase the cost of high ratio mortgage insurance for borrowers as well as increase mortgage interest rates.

Effective Oct. 17,  a new mortgage stress test was implemented for borrowers with less than a 20 per cent down payment and are required to qualify at the Bank of Canada rate going forward. (The rate is 4.64 per cent today).

Trump’s unexpected election in the U.S. has caused some uncertainty in the international bond market, which affects fixed mortgage rates in Canada. We have already seen an increase in rates for some products.

Effective Nov. 30, mortgage insurance for certain categories of mortgages were eliminated, including refinances, single unit rental properties, mortgages over $1 million, stated income programs for the self-employed, and amortizations over 25 year.

This eliminates many options for consumers and will also increase the cost of borrowing of these programs as lenders will no longer be able insure these types of mortgages. Many non-bank mortgage lenders were using this insurance for their entire portfolio.

There will now be requirements to report and claim the capital gains exemption on the sale of a principal residence on your tax return.

The results of the recent changes so far are increased mortgage interest rates, the elimination of some products at lenders and all-in-all a more complicated mortgage market.

Only time will tell what the overall implications of these far reaching changes will be, both intended and unintended.

This week, the B.C. government announced that the Home Owner Mortgage and Equity Partnership Program where they will match the down payment funds of eligible first time buyers up to $37,500 with a 25-year term second mortgage.

No payments are required to be made and interest will not accrue until the sixth year of the term.

This will make the mortgage market even more complicated as most institutional lenders – banks and credit unions – do not allow second mortgages or borrowed down payment funds.

If you are wondering how these new changes might affect your mortgage or if you are considering a new mortgage in 2017, please reach out if you have any questions and I will sort through the options for you.

Call me at 888-561-2679 or [email protected].

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