experts: real estate column Friday, June 29, 2012

What the new mortgage rules mean for you!

New mortgage rules go into effect July 9, 2012

By Dustan  Woodhouse

Here is what things look like currently:

Amortisation

1. The net effect of the change to Amortisation (down to 25 years max) will reduce the average CDN’s maximum mortgage amount by about 10%.

2. Most CDN’s (even in Vancouver) already borrow less than they qualify for, the net impact of this single item on price is not likely to be huge in my opinion.

3. The market here has been cooling for the past few months without the help of these changes.

4. Although this amortization change is supposed to be only for insured mortgages (less than 20% down) you should expect it to affect conventional mortgages as well.

Renewals /Pre-Apps

5. Existing approvals (even with completion dates after July 9th), Existing mortgages, and simple renewals ARE NOT affected by these changes.

6. If you have a 35 year AM now, at the end of a 3 yr term you will still be able to retain the timeline and renew with 32 years – unless you break the mortgage to access more funds.

Deadlines

7. We have just had the first lender announce that they will early adopt the new rules July 3rd. This has also been the pattern in the past.

8. The cutoff is firm, Zero flex this time.

9. If you are a purchaser you cannot get a pre-approval protecting you from these changes, it must be a live deal with a purchase contract or full docs package in the system prior to July 3rd in one lenders case.

1M$ Cap

10. Of the past 540 mortgages I have been a part of only one single file was a 1M+ CMHC insured mortgage, so on the surface this change would seem to mean little.

11. However behind the scenes there is a potential impact here as many 1M+ mortgages are posted with lenders that quietly insure the file on the back end, and we have not heard yet if this change will reduce the number of lenders for the larger files…less competition is never good.

GDS

12. The Gross Debt Service (GDS) reduction from 44% to 39% for borrowers with stellar credit (680+ beacon) is a more insidious change. Difficult to understand for most folks. In simple terms this represents about another 10% reduction in the max mortgage amount for borrowers with excellent credit.

13. You read #12 right, no further limitations for those with mediocre credit, but a big reduction for those with excellent credit. A high ratio buyer with excellent credit has potentially seen their max mortgage amount drop by 20%. That is material for the ~10% of buyers who fall into this category.

Bottom Line

14. Almost all previous changes to insured only mortgages were adopted across the board by the major banks. All future mortgages will be affected, as might the competition for your business. This impacts us all in one way or another, perhaps not so significantly though.

For more information call Dustan Woodhouse, AMP , PH 604.351.1253




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