MORTGAGE RULE CHANGES. Will you be impacted?


Good Morning and Happy Thanksgiving!!

This is a time to give thanks and I hope that you are getting to do that surrounded by loved ones, young and old.  From my house to yours, may the thankful list be boundless.

Not that I want to intrude on your long weekend festivities, but this may be as good of a time as any to provide you with some important reading on the mortgage market, and thus the real estate market.

As you may have heard, there was an announcement last Monday regarding mortgage regulation changes from the Ministry of Finance.  This is following previous changes announced earlier this year on down payment rules, property transfer tax and foreign buyers' tax.

Due to the depth and breadth of changes announced, I have taken the week to research, listen, and observe the reactions and comments of the lenders, brokerages, brokers, industry associations, financial experts, and the media, before I wanted to share with you the potential impacts these rules may have on you and the market place.

It is without a doubt that this was a shocking and unexpected announcement and it does have the potential to have a great impact on the real estate market. However, by how much and whom will be most effected is yet to be determined.  It will take months for the market to reflect what these changes will do to the market place.  Most speculate that first-time home buyers will bare the the hardest challenges, likely removing 20 per cent of this demographic from the market.  However, investment properties (rentals), refinances, and business-for-self loans have been targeted in a round about way.  Monoline lenders, who's sole business is servicing mortgages and mortgage related products, have been forced to remove mortgage options or change policies. With an exit or limited involvement from these Monoline Lenders, the competition for these specialized products will decrease, and therefore, rates for these products will likely increase while possibly restricting approvals.

Ultimately, the industry and market will adapt to these changes and they will become the new norm.  They are not all bad. They will prepare buyers should rates ever start to increase, which is a strong possibility when 5-year fixed mortgages are currently offered below 2.5 per cent, lowest on record ever.  When the Government is in a position to be able to increase rates, they will, and depending on it's implementation, it could leave some struggling to make payments.  Therefore, it's a protective measure to slow the ever-escalating house prices as well as to ensure that buyers will be able to withstand rate increases in the future.

For my clients, I want you to know that I will be monitoring the market, and if and when rates start to shift, I will ensure we are setting you up for success when it comes time for renewal. I will reach out with ample time to review and assess what your future payments will look like to make sure you are positioned well for your next mortgage phase.  I personally don't foresee a drastic jump in mortgage rates in the next few years, until our economy begins to stabilize from the oil and gas crisis. However, rates are not only maintained by local economic factors, but global ones as well.  Predicting anything on a global-scale is not without it's challenges and leaves expansive room for error.

For home buyers, there is hope that the prices will level off or at least soften in the coming months comparatively to what we have experienced in the last few years, mostly in the Lower Mainland and Toronto regions.  Should home values balance out, hopefully this will open opportunity for speculative buyers to be able to enter the market, even considering the new, higher qualifying requirements.

For home owners, if you were thinking about a refinance to consolidate debt, complete renovations, or for investments such as schooling or properties, this will be the time to access your equity.  Some lenders have already started to increase qualifying measures, ahead of the government deadlines.  Time is limited, so I urge you to reach out now if a refinance has been in consideration for you and your family.

ABOUT THE RULE CHANGES The Ministry of Finance has provided a technical backgrounder on the housing insurance rules and which rules they have changed.  You can learn more here.

The Canada Mortgage Professionals Association has done a great job of summarizing the rules changes.  The four points below are the key take-a-ways, which outlines the definitive changes on the immediate horizon, but there is also consultation happening specific to "sharing of risk" in terms of mortgage defaults. The government would like to consider a shift from our current model of 100 per cent government-back mortgages to having lenders share some of the responsibility for default risk.

Summary of Mortgage Rule Changes

  1. All insured mortgages will now need to qualify at the Bank of Canada benchmark rate (4.64%) instead of the contract rate offered on their commitment. This change is scheduled to come into effect on October 17, 2016.
  2. Portfolio (‘bulk’) insurance must now meet the same criteria as those that are high ratio (less than 20% down payment) insured. This change is scheduled to come into effect on November 30. This means that amortizations greater than 25 years, rental and investment properties and homes with values greater than $1M can no longer be portfolio-insured.
  3. Capital gains exemptions on principal residences will apply only to residents of Canada.
  4. In addition, there is further discussion about ‘sharing in risk’ that is currently borne in large part by the three mortgage insurers (CMHC, Genworth and Canada Guaranty). While high ratio customers and portfolio insurance funders pay for this risk, there is discussion about sharing in the cost of losses beyond just the mortgage insurers. This in and of itself could have significant implications. The Association will continue to monitor any discussion around this.

If you have any questions regarding the mortgage changes or would like to know specifically how these rules may impact you, please do not hesitate to contact me at any time 778-847-8466 or