New rules in effect

And so it begins.

I attended the Penticton Chamber of Commerce Town Hall meeting on Wednesday where MP Dan Albas was the keynote speaker.

Topics were the recent mortgage rule changes, and changes to small business taxation.

Albas has been vocal about anticipated effects of the changes, so I was interested to hear his take on the new rules. He shared his thoughts as to some of the possible challenges homeowners may face under the new qualification rules.

The discussion that followed was interesting. My feeling was that most of the people in the room were concerned about some of the unintended consequences of the rule changes.

One contentious topic was mortgage renewals. My interpretation is that many Canadians now have fewer options at renewal.

If people bought at the top end of their price range, if their employment or income has since changed, or if they have taken on new debt, they may not have the flexibility to rate shop at renewal time.

If their mortgage is coming up for renewal this year, it means they originally qualified at a rate lower than three per cent. If they are now considering options at other financial institutions, they will have to qualify at a rate of 4.99 per cent, or possibly even higher depending on their chosen rate.

One person in the room didn’t see this as a problem. As long as a client renews with their existing lender they don’t have to requalify. 

At least, this is the current way of doing business.

Renewing with the existing lender is generally simple — usually one signature and the client is good to go for another five years.

Switching involves completing a new application, gathering and providing documentation, and the angst of waiting to find out if a new mortgage is approved.

Switching creates a competitive rate environment. Switching affords clients options.

When clients call me to discuss switching their mortgage at renewal, the first question I ask is what rate their lender is offering. I review their situation and talk about rates and packages I can find for them.

If the rates I find are lower, I suggest that they call their lender back to see if they will match or beat the rate I quote. Before I waste a client’s time, I like to make sure I have a better option.

This may seem counter-intuitive. As a broker, I would, of course, like the business. However, many times once the current lender knows the client may switch out they offer a lower rate.

How do I see this changing?

I wonder how long it will take for financial institutions to implement a new process at renewal. For instance, will they ask clients for updated information? Pull credit reports to consider the client’s overall financial picture?

And if this review shows the clients won’t qualify at another lender, will they still be offered competitive rates?

I have been through rule changes many times. The initial reaction tends to be the same. There is a lot of frustration and fatalistic thinking, then mortgage providers and clients adapt and move on. Over the last year, we have adjusted to the initial stress test. 

If your mortgage is coming up for renewal in the next few months, it is a great idea to do your homework sooner rather than later.

Whether you are thinking of listing your home for sale and moving, or keeping your mortgage essentially the same, my recommendation is that you first touch base with your banker or mortgage broker to see how the new mortgage qualifications affect your particular situation.

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