New Mortgage Recipe

No April’s Fools

Undoubtedly, you didn’t hear it first but, just in case you were asleep, cheering the 2010 Olympics, or caught in the frenzy of buying or selling home you should take note that on April 19th, 2010 the mortgage world will change.

Changes

Effective April 19th high ratio mortgages that are insured, have a variable rate or a fixed term that is under five years must qualify using the greater of the chartered bank 5 year posted rate or the contract rate.

Simply, you must qualify for the 5 year posted rate but, it is likely that at least for now, you may be able to secure a ‘contract’ rate that is lower. The new rules have one objective – to that you can afford higher rates.

The posted rate is easy to find. The Bank of Canada publishes it each Monday. The rate to look for has this series number V121764. See Conventional Mortgage – 5 year. Click the little box then go back to the top, enter the date and then click ‘Get Rates’. If you followed these instructions you should get this screen shot showing you that the rate is 5.39%.

What Does this Mean?

The main three changes are –

  • 1. Insured refinances limited to 90% of property value
  • 2. Qualification for variable rates to be set at the 5 year, rate rather than 3 year rate
  • 3. Rental mortgages limited to 80% of property value

There Is More

Further, to these an additional change will take place on April 19th. This rule change will for many, have the greatest effect on home buyers.

In his email update, Rob Reagan-Pollack of Invis explains it this way:

“CMHC – have announced effective April 19th, they will no longer offset rental income against mortgage expense. The proposed new policy will now add 50% of rental income to qualifying income. This will negatively affect anyone who is relying on “suite” income as a mortgage helper, or for anyone who owns or was planning to buy revenue property.”

Rob’s Example

“$1,000/mo of rental income under old rules would add $800/mo of mortgage potential to a file (80% offset) – Approx $153,000 to 184,000 of additional borrowing capacity in today’s rate environment using a 25 or 35 year amortization.

$1,000/mo of rental income under new rules would add $175/mo of mortgage potential to a file (50% of $1000 added to income x 35% of income) – Approx $33,000 to $40,000 of added borrowing capacity in today’s rate environment using a 25 or 35 year amortization.”

“This means anyone who owns rental property or wants a mortgage helper will need a minimum of 20% equity so conventional lending guidelines apply. The unfortunate casualty here are the mortgage banks who rely on CMHC to “bulk insure” their conventional mortgages. Mortgage banks who secure and sell mortgages via the Canada Mortgage Bond or Mortgage Backed Securities will no longer have the ability to offset rental income regardless of loan amount. This means the only lenders who will be able to offer rental offset will now be Chartered Banks and Credit Unions. These institutions do not rely on secondary markets and set their own lending guidelines when lending with more than 20% down.”

Shake Up

Rob, always modest, suggests that “these changes will shake up the market, especially in Vancouver where suites and rental units are popular!”

Cookie Effect

It is anticipated that these rules will leave many buyers on the sidelines. Whether due to personl income levels insufficient to qualify for a mortgage or that they can no longer count on the full benefit of the ‘mortgage’ helper, in either case, many will be left to stand at the station. In addition, suspect is that come July, the idea of baking a dozen cookies may be less appealing. With the addition of the HST to the mix, your home buying decision may equate to baking a much smaller batch or none at all.

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

When Life Moves You - contact Larry:

*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Peter Pocklington Says:
March 8th, 2010 at 2:58 pm

I think what this means is even higher inquality when it comes to housing. Now only the rich will be able to accumulate more properties and further move housing way above “fundamental” values.

March 8th, 2010 at 3:08 pm

@Peter Pocklington

-and with that, no one needs to waste time considering who amongst us will be content with these changes. 🙂

John Says:
March 8th, 2010 at 7:38 pm

03/08/10 Van – 115 list / 19 sold, GV 335 list / 63 sold

If it were April 1st, I’d suspect you were playing a prank on us with those kinds of numbers 😉

PostOBlues Says:
March 8th, 2010 at 7:48 pm

HOLY CRAP LARRY

What do YOU make of today’s dailies?

Incredible.

March 8th, 2010 at 8:23 pm

@ John
– Yup looks a little odd methinks. Double checked and it is what it is. No April Fool’s here but to quote from Wikipedia: “In modern times, the term Ides of March is best known as the date that Julius Caesar was assassinated.” Could be the market is bleeding out. I’d wait to see what effect all the price reductions have.

@PostOBlues-
Holy crap is a solid expression for the day.

Boombust Says:
March 8th, 2010 at 8:43 pm

Larry…by using the term “All Areas”, are you referring to ALL the areas that constitute the REBGV? Or, just what lies within Vancouver City limits?

Thanks,

BB

March 8th, 2010 at 8:53 pm

@BoomBust –

All Areas=entire REBGV

tanuki86 Says:
March 9th, 2010 at 9:40 am

Great post Larry. Every little wrinkle that is uncovered in this story is fascinating.

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