Mortgages as (almost) usual

When I wrote my last column, we had just learned that Canada Mortgage and Housing Corporation (CMHC) had announced changes to their policies. In a nutshell, the three changes are:

  • Lowering debt service ratios used to qualify insured mortgages
  • Increasing the minimum credit score required
  • Eliminating the borrowed down payment program

These changes are significant because clients who put down less than 20 per cent when they purchase a home must qualify for default insurance, which is what CMHC provides.

There are two other companies that provide mortgage default insurance: Genworth and Canada Guaranty. Both Genworth and Canada Guaranty have announced that they would not be changing their policies at the current time. 

Since CMHC announced its policy changes, we have had bulletins from multiple lenders outlining how they will be handling new applications. Lenders have the ability to choose which company they use, so for the time being it is business as usual for clients that require slightly higher ratios.

I’ve had conversations about this rule change with most of my clients that are actively house shopping. I’ve also informally polled a few other brokers and friends as to their thoughts on tighter qualification guidelines.

My clients in northern B.C., for the most part, will be less impacted by a tightening of mortgage rules. On average, incomes are higher and home prices are proportionately lower.

In the Okanagan, I am glad that we still have Genworth and Canada Guaranty as options because I see more clients needing to purchase homes that put them at the top of their debt servicing.

This disparity has led to some rather thought-provoking conversations.

It’s all well and good to tell clients what the maximum mortgage amount they qualify for is. It's quite another to tell them what their actual mortgage payment will be at that price point.

When working with clients on a pre-qualification and rate hold, we discuss what their new payment will be. One of the tips I’ve shared is trying to tuck that amount away monthly into a savings account for four to six months to see if the higher shelter payment truly works for the clients.

Those conversations were often the springboard into discussions of how differently people handle their finances.

Some people will turn a nickle over half a dozen times before parting with it, while others are more about immediate gratification. I’ve seen clients who are making less income scratch and save to put together a down payment and seen others who make significant income unable to save what they need to buy a home.

The last few months have given us a glimpse into how we will make it through unexpected financial crises. 

In one of my columns I talked about how changing habits like buying daily coffees can really impact our savings accounts. As I am starting to slide back into old habits I can definitely see the change in my account.

How does this all tie together?

Smaller mortgages would (in theory) mean that people are better able to save and have adequate resources available to carry them through income interruptions. Smaller payments would (in theory) mean people could potentially tough it out a little longer than if responsible for larger payments.

From a professional perspective, I am glad that Genworth and Canada Guaranty have decided not to follow CMHC’s changes. I won’t be surprised to see them change down the road. 

In the meantime, while chatting with clients about their pre-qualification amounts I am also discussing the ratio changes and how those changes would directly impact them if for some reason we needed to use CMHC for their default insurance.

Being over-extended and feeling stressed about finances all the time is not a fun way to live. If you are thinking about buying a home (particularly if that home is a mobile / manufactured home) over the next few months, make sure you connect with your mortgage person to see if you may be impacted by the CMHC changes. 

On a more positive note, it feels like more people are out and about buying homes. Lenders have had a few months to adjust to new protocols for their employees.

Starting to feel like it is back to mortgages as usual.


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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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