This week, Ottawa announced new mortgage rules that could impact home buying dramatically in Lethbridge and the rest of the country. If you are planning to buy a home in Lethbridge (or refinance your existing one), you need to pay attention and pay attention now. Don’t walk, run to your preferred mortgage broker and get re-qualified.
My friend Kelly Thibeau at Dominion Lending Centres offered the following summary of what to expect and how it may impact your ability to buy, sell or refinance here in Lethbridge.
1. A “stress test” making people qualify for their mortgage at the 4.64% benchmark rate*
Regardless of the lender, term or contract interest rate, anyone with less than 20% down (a high ratio mortgage) will need to qualify for that mortgage as if the rate was 4.64%*. This will dramatically impact consumer purchasing power, moving some buyers into a completely different class of home. For example, if you are currently pre-approved for a $400,000 purchase price, after October 17th, your pre-approved amount will be closer to $320,000.
2. New restrictions on insurance for low-ratio mortgages (more than 20% down)
Contrary to popular belief, a lot of lenders do insure conventional mortgages behind the scenes (sometimes referred to as “back-end insuring”). So, as of November 30th, there will be changes for mortgages with more than 20% down. For a lender to qualify for insurance on a conventional mortgage, some of the new criteria includes an amortization period of 25 years or less, a purchase price less than $1 million, and a credit score of at least 600. The property must also be owner-occupied. In turn, the government lowers its risk exposure to residential properties worth $1 million or more.
What a lot of homebuyers don’t realize is that there are multiple “non-bank status” lenders known as monolines. These lenders always purchase insurance, regardless of the down payment size. Monolines compete with the big banks which keeps interest rates on mortgages low. However, under the new qualifying rules, the monolines aren’t necessarily able to offer the same low rates to as many borrowers. This will have two key impacts:
- Interest rates become less competitive and in turn, many homeowners may not qualify for refinancing.
- Investors who want to buy revenue property now have less borrowing options.
We have already had several lenders suspend all rental purchases and no refinances after November 15th. Some have also increased their rates on conventional rental purchases.
3. New CRA rules for primary residence capital gains exemption
Right now any financial gain from selling your primary residence is tax-free and does not have to be reported as income. While capital gains will still be exempt, everyone who sells their primary residence will now have an obligation to report the sale to the CRA. This is intended to discourage foreign buyers in Vancouver and Toronto from flipping properties that are rapidly escalating in price. But for most people selling their home here in Lethbridge, it’s a matter of more paperwork at tax time.
4. The government is starting consultations on lender risk sharing
Currently, the federal government covers an insured mortgage if it defaults. The federal government says that it will be releasing a proposal to have lenders and banks take on some of that risk. This could possibly lead to higher mortgage rates for home buyers, potentially a huge change to the Canadian housing market.
What you should do next if you’re buying, selling or refinancing a home in Lethbridge…
Reports from the insurers are stating that close to one third of mortgage approvals will be affected by these changes. There are many questions and concerns about how these changes will affect mortgage renewals, refinance options, and the housing market in general. Each bank will be changing their individual programs and policies to deal with these new guidelines. We will just have to wait and see how each bank reacts and how the Lethbridge housing market responds.
In the meantime, to avoid the new stress test, you would need to have an accepted offer and a mortgage application submitted before October 17th, 2016.
Kelly Thibeau is a licensed underwriter with Blair Huston at Dominion Lending Centres – Mortgage Excellence in Lethbridge (403.327.2221). Sources for this article also include The Globe and Mail, Dominion Lending Centres, and MortgageBrokerNews.ca. Information contain herein is deemed reliable at the time of this writing but is not guaranteed. Consult a licensed mortgage broker for the most up-to-date information and advice regarding your next home purchase or refinance.
*Bank of Canada qualifying benchmark rate as of this writing.
Are you trying to figure out if now is a good time to buy or sell a home in Lethbridge? Then call me, Karri Flatla, at 403.394.6699. Or just drop me a line by clicking here. I’m always happy to help!