The changing mortgage landscape

Mortgage qualification

With interest rates rising and housing prices predicted to drop, I’m seeing lenders tighten up on some of their qualification criteria.

When the Stress Test was first introduced in 2016 we anticipated that the stricter qualification guidelines would push more clients from the traditional lending world into pricier alternative options.

That definitely played out, and I expect we will see even more clients having to look for options in the alternative space with the combination of rising interest rates and lenders tightening their belts.

That being said, over the last few weeks I’ve been working on several challenging files that should definitely fit somewhere in the traditional lending world but for a combination of reasons I can’t find the right fit.

After a conversation with one of these clients I sat for a few minutes reflecting on what we had just talked about.

My clients retired early as they own several rental properties on Vancouver Island which provide strong rental income. They have a sizeable investment portfolio. They elected not to start their CPP and OAS as they don’t need the income. Their net worth is nearing $10,000,000.

They are wanting to refinance one of their properties to buy another. Because of the way that lenders do their calculations it looks like the clients are overextended.

Several lenders offer products specifically for High Net Worth clients. Each program has slightly different criteria that the clients must meet. Because the sole source of income for these clients is rental income, I couldn’t get any lenders onboard for their approval.

I find these types of files exceptionally frustrating. Here we have clients that have worked hard all of their lives (they were self-employed and ran three businesses) and invested strategically. Will they EVER miss a mortgage payment? Never.

Will they fit one of the products offered by an alternative lender? Absolutely.

My clients are rate-conscious and fastidious with their finances. Rather than look at an interest rate nearing seven per cent they chose not to move forward at this time.

I have a tough time wrapping my head around the fact that I can’t find them a suitable solution that is reasonably priced.

Towards the end of our conversation, he asked if they started their pensions would that change anything. According to at least one of the lenders I talked to the answer was yes. They don’t need the income and would prefer to wait, so we may revisit this in a year or two.

They then asked if they were still working (with minimal income even) if that would change things. Again the answer was yes.

One of the conversations I have with my clients if they are refinancing or buying and are nearing retirement is about setting themselves up with additional resources before they retire, even if they don’t require any extra funds.

In cases like this I look more closely at mortgage products that offer a combination of an amortizing mortgage and a home equity line of credit. Some people say they are not interested and that is totally fine.

Others that have elected to take a hybrid mortgage have come back years later and said how handy it was to have the credit line readily available. A few of these clients have used money to help their children, and one couple needed the funds to replace a roof and hotwater tank in their home.

It is far easier to qualify for credit when you don’t actually need it than when you are in a financial crunch.

If your mortgage is coming up for renewal and you are nearing the end of your working career, it might be worth looking into adding a credit line as a safety net for down the road.

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

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About the Author

Tracy Head helps busy families get a head start on home ownership.

With today’s increasingly complicated mortgage rules, Tracy spends time getting to know her clients and helps them to better understand the mortgage process. She supports her clients before, during, and after their mortgage is in place.

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

Tracy works hard to find the right fit for her clients and provide support for years down the road.

Call Tracy at 250-826-5857 or reach out by email [email protected]

Visit her website at www.headstartmortgages.com

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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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