No need to panic over new mortgage rules

No one has a crystal ball to see what the next few months - or years - will bring, but it’s likely that some Canadians will have trouble with their debt in the wake of COVID. With that possibility in mind, the Canada Mortgage and Housing Corporation (CMHC) recently announced that it is tightening the rules for Canadian homebuyers looking for insured mortgages. Homebuyers with less than 20% downpayment require mortgage default insurance: an important protection for Canadian lenders.

Alternative options available

This is a great time to work with a mortgage broker! I work with dozens of lenders… and private mortgage insurers – Genworth Canada and Canada Guaranty - that are an alternative to CMHC. Neither have announced new underwriting guidelines, which means I expect to be guiding many new homebuyers through these alternate insurance channels. This is great news and why there is no need to panic.

Get in touch at any time

Having trouble keeping up with all the changes lately? That’s why I’m here. My only focus is mortgages and I am always up to date on the changing mortgage marketplace. If you or someone you know is looking to buy, it’s important to get in touch early so we can put a solid plan in place. Or, if you have concerns about your current mortgage strategy, let’s talk, especially if you want to find out if you can renegotiate your mortgage to take advantage of today’s low rates, or refinance to consolidate troubling high-interest debt.

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Summary of the new CMHC rules (effective July 1):

1. Reduced buying power. Previously, CMHC allowed 44% of total income to service all your debt and up to 39% of total monthly income to service housing payments (principal, interest, taxes, heat, condo fees). They have now tightened this back to 42% of total income can now go to service all your debt, and 35% of total monthly income to service housing costs. This reduces a homebuyer’s purchasing power by anywhere from 9 to 11%. As an example, someone qualifying for a $500,000 home now, will see that decrease to approximately $445,000.
2. Higher minimum credit score. At least one applicant’s credit score must now be a minimum of 680, up from 600. Find out your own score - free - through Equifax or TransUnion.
3. Downpayment funds can no longer include most borrowed downpayment sources. Very few buyers used this option so this will have a minimal impact.

Six questions answered

As the longest spring in memory finally gives way to summer, it’s nice to see people safely enjoy the sunny weather. I hope that you and yours are in good health. There continues to be uncertainty about the shifting mortgage market. Here are the most common questions:

Should I break my fixed mortgage to get a lower rate?  

If you’re only partway through your fixed mortgage term, you’ll need to pay a penalty to break your mortgage. Locking in a low rate now can be a strategy to provide some reassurance in an uncertain future, and you may be able to save considerable money over the long term and not be out of pocket to complete the transaction. If this is a question that’s on your mind, get in touch so I can provide you with detailed cost/benefit analysis.

Can I refinance my mortgage to deal with high credit card balances? 

If you have more than 20% equity in your home, you may have the option of refinancing your mortgage and roll all your debts into a new, low-interest mortgage. You can get immediate cash-flow relief and one manageable monthly payment. Your lender will need to re-qualify you, so if you’re already dealing with reduced income or collecting CERB payments that could impact your ability to qualify. I can help you look at all your options.

What about my mortgage renewal? 

Get in touch now to start a consultation on your options. A lost job or drop in income will be a factor if you want to move to a new lender for a lower rate. You can renew with your current lender at their best offer, or use an open mortgage for a few months, with a strategy of moving to a lower-rate closed mortgage without penalty as soon as your finances stabilize.

Should I lock in my variable-rate mortgage? 

If you have a deeply discounted variable-rate mortgage, you are in a very good position given the recent drops in prime rate. Variable mortgages can be converted to fixed without penalty, providing long-term peace of mind knowing you have security for the next five years. While the rate environment remains in flux, it might be best to enjoy your lower rate for now and re-evaluate in 6 to 12 months.

Should I take the mortgage payment deferral that is available?  

The immediate relief is compelling. However, your lender will add the interest accrued during the skipped period to your outstanding balance, which will increase your mortgage balance. Alternatively, you may be able to borrow from a Line of Credit, making interest-only payments until the financial stress begins to ease. Other options include extending your amortization or moving from accelerated to monthly payments.

Fixed or variable mortgage rate? 

The answer again depends on you: your tolerance for risk, where rates are expected to go, and personal preference. With the rate environment changing all the time, what may be the right decision for you this week, could be different next month. Let’s have a conversation so I can get a clear picture of your plans and current situation. 

Good news! The qualifying rate has been lowered to 4.94%, which is great news since it is used in stress tests for both insured and uninsured mortgages, and a lower rate means it is easier for borrowers to qualify. For the first time since January 2018, when stress testing began, the mortgage qualifying rate is under 5%. Find out how much you qualify for! 

Have a question? Get in touch at any time. Be safe. Be well. Be happy.

Mortgage deferrals and ten more timely tips

I hope you and your family are enjoying good health and finding some measure of happiness in this strange spring. Certainly, many Canadians are feeling the financial pressures mount as we work together to conquer this pandemic. The good news is there are strategies that can help.

The Mortgage Deferral Program has been the first line of defense for thousands of homeowners looking for immediate financial relief. However, a Mortgage Deferral is not a payment “forgiveness” that allows you to simply miss payments. While you don’t pay anything at all during the relief period, your lender will add the interest accrued during the skipped period to your outstanding balance, which means your mortgage balance will increase. Your payments remain the same for the rest of your term but can increase at renewal to account for the higher balance. Some lenders may increase your payments after the deferral. I can help you determine if this is right for you and advise how to apply.

Some additional strategies and tips:

1. Consider other options. Instead of using the Mortgage Deferral Program, perhaps you can borrow what you need from a Line of Credit, making interest-only payments until the financial stress begins to ease. Other possibilities include extending your amortization or moving from accelerated to monthly payments. I can help you compare all your options.
2. Applying for the CERB. You need to apply to the Canada Economic Relief Benefit (CERB) for each 4-week period that your situation continues, up to a maximum of 16 weeks. If you are receiving the CERB through EI, you simply complete your bi-monthly reports to continue receiving your benefit. Keep in mind that these payments will be taxable to you next spring.
3. Get your tax return filed. If you collect the Child Benefit or GST/HST credit, you don’t want your benefits delayed. If you’ll owe money, payment has been deferred until September 1, so don’t let that keep you from filing now.
4. Check your travel points program. Many points programs allow you to redeem travel points for gift cards that will help pay for gas, groceries and other essentials.
5. Ask your credit card provider about minimum payment deferrals. Some providers will allow deferrals to help get you through a tough patch.
6. Talk to your local utilities and communications providers. Again, many are willing to talk about payment options or deferral programs.
7. Look for money leaks. Go through your credit card and bank statements with a fine-tooth comb, looking at subscriptions or other expenses that can be eliminated or reduced.
8. Make a (better) budget.  Check out the good budgeting apps that are free – Mint, Wally, or check out KOHO, which is like a chequing account with the perks of a credit card. 
9. Be aware. These are unsettling times and unfortunately there has been a wave of fraudulent scams. Visit the Canadian Anti Fraud Centre for up-to-date information.
10. Adopt a positive mind. Use this time period to be better with money. There are many predictions that our new habits will carry forward with us, so adapting and keeping better money habits will serve us well in the bright future that is just over the horizon.
    
    

Please know that I am at the other end of a phone call, email, or video conference, ready to help. Be safe. Be well. Be happy. Let’s talk soon.

What now? Making sense of a changing marketplace 

Let me begin with my heartfelt hope you and your loved ones are in good health.

We are in uncharted territory with the mortgage marketplace continually shifting. Here is a quick summary of common questions to help you make sense of it all.

FOR CURRENT HOMEOWNERS

What do the mortgage payment deferrals mean and how do I access that?

Mortgage insurers and lenders announced that eligible clients can delay mortgage payments. These are “compassionate” programs for those who are in serious financial straits and unable to make their mortgage payments. You will need to apply to the program, and assistance will be determined on a case-by-case basis so please do not just start skipping payments. If you urgently need this help, get in touch. I can help you find the right channels to apply.

Will the lower Bank of Canada rate help me with my variable mortgage or line of credit?
Yes, your interest rate will also drop. Keep in mind that it usually doesn’t happen instantly, and your own rate won’t necessarily move in lockstep with the Bank of Canada rate. Ultimately, it’s the lender’s decision on whether – and how much of – the rate cut will be passed along to the end consumer. Lenders are naturally concerned about liquidity and the potential for an increase in defaults. If you do have a deep discounted variable rate mortgage, you are in a very good position.

What about my fixed-rate mortgage?
If you’ve got a fixed-rate mortgage, then nothing changes for you right now. The rate you negotiated is guaranteed for the entire term of your mortgage.  However, if your fixed rate is a lot higher than the current rates available, then it is still worth calling to see if it makes sense to re-negotiate your mortgage to take advantage of today’s rates.

I have some credit-card and/or loan debt that now has me worried.

If you’re carrying high-interest credit card debt, and you have more than 20% equity in your home, it can make sense to roll those other debts into a new mortgage. You get one manageable payment, better cash flow, and interest savings.

FOR HOMEBUYERS

Events that have impacted buyers include:

1. Obviously, we’re seeing not as many listings and home visits are certainly not wise. Most activity will be on hold until the future becomes clearer. Use this down time to get in touch for a review of your situation so you are ready to go when the time is right for you.
2. The stress test changes announced earlier this year that would make qualifying a bit easier for both insured and uninsured mortgages will no longer go into effect April 6th.
3. While rates initially went down at the start of this crisis, they then started to go up. New variable-rate mortgages are no longer being offered at deep discounts to prime.

We all need to take things as calmly as we can, evaluate our priorities, and make decisions that are needed for the long term. Health and happiness to you and yours.

Coming soon! Feds ease up on the stress test

Anyone looking for a mortgage in the last few years has been introduced to the “stress test”. In order to qualify for a mortgage, Canadians must prove they can withstand an increase in rates, which requires them to qualify for payments far above what they will actually pay. The good news is that the Canadian government has decided to ease up on the stress test. 

Lower qualifying rate

Effective April 6, anyone applying for an insured mortgage (less than 20% equity) will see a fairer stress test used. It’ll be based on the median five-year fixed insured-mortgage rate, plus two percentage points. This makes the stress test more dynamic and inline with actual rates people are borrowing at and will be set every week. 

It is expected that the same new benchmark rate will be used for mortgages that don’t require default mortgage insurance (more than 20% equity). Looks like the qualifying rate for uninsured mortgages will change to the greater of:

• The actual contracted mortgage rate, plus 2%; or
• The new benchmark rate described above. 

This means the stress test for uninsured mortgages will still be a slightly tougher hurdle.

What’s the bottom line?

Any drop in the qualifying rate – with the new stress test or declining rates in general - will make qualifying easier and increase your purchasing power. So, the upcoming change on April 6 is good news.

Is the mortgage world still confusing? Yes absolutely, probably more so! That’s why great advice based on experience and access to multiple lending options is so important. While the stress test may be less stressful, my goal is to reduce stress from your entire mortgage experience and help you build wealth with the right mortgage now and excellent advice going forward. Get in touch at anytime, these are exciting times for buyers and homeowners!