Summary of the New Mortgage Market

There have been a lot of changes in the mortgage market over the past few months so many Canadian’s plans regarding homeownership may have shifted quite a bit from last year.

First, new qualification rules came to pass in October where even though actual contract rates are sitting at about 2.79% all Canadians have to now qualify at the Bank of Canada Benchmark rate of 4.64% to prove payments can still be met when rates go up in the future. That has taken about 20% of people’s purchase power out of the equation.

The second round of rules were implemented at the end of November with the government requiring banks to carry more of the cost or lending having to do with how they utilize mortgage insurance and the level of capital they have to have on reserve. This means it is more costly for banks to lend so they are passing some of that cost to Canadians.

We now have a tiered rate pricing system based on whether you are “insurable” and meet new insurer requirement to qualify at 4.64% with a maximum 25-year amortization (CMHC, Genworth, Canada Guaranty are the 3 insurers in Canada) or are “uninsurable” where you may have more than 20% down but can’t qualify at the Benchmark rate or need an amortization longer than 25-years to qualify or are self-employed so can’t meet traditional income qualification requirements. Canadians who are uninsurable will be charged a premium to their rate of anywhere from 15-40bps. So your rate would go from 2.79% to 2.94% at the very least.

Then in BC there was the announcement of the BC HOME Partnership Program (BCHPP) in January. We have finally had some clarification on how this works but the benefits are not as grand as the BC Government would like them to appear.

The BCHPP is a tool to assist First Time Homebuyers supplement their down payment by the government matching what they have saved up to 5% of the purchase price. While this may help some clients bring more money to the table we have to factor a payment on that “loan” into the debt-servicing mix so they will actually qualify for less by way of a mortgage. They have more down payment but can not get as high a mortgage so it’s very close to a wash.

Lastly, as of mid January, CMHC announced they are increasing mortgage insurance premiums on March 17th. Genworth and Canada Guaranty are likely to follow. The insurance premiums are based on a percentage of the mortgage amount requested and how much you have to put down. For people with 5% down the premium will go from 3.60% to 4.00% and if you want to take advantage of the BCHPP program the premium will go from 3.85% up to 4.5%

What does this all mean? Overall it is more costly and more confusing to get a mortgage today than we have seen in many years. With the complexity of the new mortgage market, now more than ever buyers need someone with extensive knowledge to help them sort through their options – such as your local Dominion Lending Centres mortgage professional.

If we can be of assistance to you or someone you know, please do not hesitate to contact us 705 646 2777

How Your Credit Score Affects Your Purchase Price

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.