Over the last couple months we’ve been talking about the new mortgage rules coming in the new year of 2018. The anticipation and its uncertainty is killing us. We want to ensure that you are fully prepared and know what to expect, thus we want to make sure that we didn’t exclude any important information in our previous blogs ‘New mortgage rules, including stress test for uninsured borrowers’ and ‘More Mortgage Rule Changes On The Way?’ to help you get prepared.
As we’ve mentioned in the past, 2018 will be a time when getting a mortgage may no longer be so easy, especially for first-time buyers, as well as homeowners looking to refinance.
The ‘Stress’ Test
If you’re a first-time home buyer, effective New Year’s day, the ‘Stress’ Test will be on your doorstep, including a new minimum qualifying rate. So, don’t assume that because you have a large 20 percent or more down payment that this will not apply to you, because the opposite is true.
If you fail the ‘Stress’ Test, you won’t get the mortgage you’re hoping for, which cause a lot of discouragement. This isn’t a good way to begin the new year.
The days of qualifying at the rate offered by your lender are over. Now, you’ll either need to qualify at the Bank of Canada’s 5-year benchmark rate, or 2 percent (200 basis points) higher than the actual rate being offered by your lender.
Although the above is true, it’s important to remember that your actual mortgage payments will still be paid at the rate which you negotiated with your lender, the higher rate via the new mortgage rules is for mortgage qualifying purposes only.
What You Need to Know about Enhanced Loan-to-Value (LTV) Measurements
If you’re going with a Canadian bank to secure your first-time mortgage loan, then you need to know that your LTV ratio with the bank will also be adjusted according to the conditions of your local housing market, since these lending institutions need to ensure LTV ratios are kept dynamic.
In higher priced markets in the GTA, the banks are required to follow certain internal risk management protocols in order to determine the risk associated with your loan. If your loan-to-value ratio is high, you’re considered to be a high risk.
LTV Limit Avoidance & Restrictions on Certain Arrangements
When it comes to traditional mortgage lenders, they are prohibited from making mortgage loan or financial product arrangements with other lenders who find ways around the LTV ratio maximum. They are also prohibited from arrangements that involve any other limitations place on home mortgages.
What this means is that even if you only qualify for say, a 60 percent LTV loan, your lender can no longer partner up with with other lenders to get you a bundle for a LTV loan of 80 percent. You’d have to be approved for the 80 percent LTV loan in order to get that.
Don’t let this news discourage you just because you won’t have as much buying power as you did in 2017. These rules only apply to mortgages that are secured with a Canadian, federally regulated lender. At AKAL Mortgages, we work with private lenders too, so many of these rules will not apply to them. Due to this, we can still help you to secure your mortgage.
When we say YES! We stand behind our promise.®