|New mortgage rules UPDATE
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|Author:||PaulMeredith [ Wed Nov 30, 2016 7:46 pm ]|
|Post subject:||New mortgage rules UPDATE|
Today, the new mortgage regulations announced back in October take full effect, and most lenders waited until the very last moment to advise on how they would be implementing the changes. Things are definitely getting more complicated then they were in the past, but i'll try to simply it as much as I can.
Most lenders are classifying mortgages into two categories:
Insurable and un-insurable.
So what does this mean? He's a brief explanation of each and how they are affected:
Pretty much all mortgages by non-bank lenders and some mortgages from the big banks are 'bulk insured'. In other words, CMHC (for example) is insuring these mortgages on the back end. If you have 20% or more down payment, the insurance premium is paid by the lender.
This is nothing new. What is new is how these mortgages are affected. These are what's referred to as insurable mortgages, and the following changes have now been implemented on them:
- 25 year maximum amortization
- Maximum purchase price must be less than $1 million.
- Qualification is based on the benchmark rate set by the Bank of Canada, which is currently 4.64%
There are some lenders that have implemented these changes across the board and will no longer be offering mortgages outside these parameters. The good news is that there are still many options for un-insurable mortgages.
Anything outside of the above limits would be considered 'un-insurable:
- 30 year amortization
- Purchase price over $1 million
- qualification based on contract rate... that is, the rate your payment is based on. This applies to 5 year fixed only. Shorter terms and variable will still need to qualify based on the benchmark rate, which is nothing new).
The minimum down payment is 20% or greater for all un-insured mortgages.
The best mortgage rates will typically be with the insurable mortgages. The reason being is that most non-bank lenders rely on securitization, which is where the funds come from. Since this is no longer an option for them on un-insurable mortgages, the cost of funds is now increased as they now have to source out alternate sources of funding.
A 5 year fixed rate on an insurable mortgage right now is as low as 2.39%. On an un-insurable mortgage, it can be as much as 20 basis points higher. (0.20%)
This is how the changes are being implemented 'for now'. There still may be adjustments made as mortgage lenders start to feel more comfortable with the new regulations.
For anyone who has a binding agreement to purchase a pre-contruction home that was in place prior to October 3rd, you will not be affected by the new regulations.
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