October 11, 2016

What a difference a day makes

OCT 11, 2016

This Saturday I met some potential artist clients in a cozy coffee shop on the east end. They were smart, funny, talented, and wisely preparing for their future. Their awesomeness, however, isn’t the point of today’s blog; it’s the TIMING of this coffee date that established a plot twist as soon as we said, hello.

MONDAY.

Monday, October 3rd, 2016
(blissfully ignorant at a cabin without internet that morning #timing) was the day that the Government of Canada announced sweeping changes to their mortgage lending requirements. I’ve been relatively quiet about it up to this point, waiting for updates from my brokerage who are, in turn, waiting for the unusually silent lenders to react to how the new rules will affect them directly.

It’s still premature to give my final word on the situation, but I do think it’s time to start acclimatising to inevitable, albeit drastic, changes.
Leave panic at the door, move forward, and follow the rules like they have been there all along.


Easy, right?


QUALIFYING FOR A MORTGAGE
a.k.a.
AFTER MONDAY


Without going into too many of the
gory details - and there are a LOT - HOW you qualify and WHO will accept your qualifications (insert the lender here) rest in newly altered positions of power.


BEFORE MONDAY, I would have sorted out your numbers, established your maximum qualifying budget, and THEN investigated which lender would serve you best in your situation. There are always hiccups, but, the basic qualifying info remained relatively the same, regardless of the lender.

AFTER MONDAY, the BIG BANKS and the smaller MONO-LENDERS (who I prefer, actually) will not be following the same rules so, neither will your file. Automatically, the WHO (the lender) in your life will play an even bigger part in your qualifying process than ever before.

In short: some lenders will be allowed to qualify you at a lower contract rate (ie: 2.44%) on conventional deals, which gives you more buying power, and some lenders will only be allowed to qualify you at the higher benchmark rate (4.64) no matter WHAT your down payment, conventional or high ratio.

*slow blink*
silence


I know, it’s a bit much, really.

LET’S PRESS THE PAUSE BUTTON

||


Conventional Mortgages: if you are qualifying with your NET income, and you have a 20% down payment, you avoid the whopping insurance premium attached to your mortgage. If you are qualifying with your GROSS income, Conventional refers to someone who has a 35% down payment before you avoid the insurance premium.

High Ratio Mortgages: if you are qualifying with your NET income, and you have LESS than a 20% down payment, you will require an insurance premium to be added to your mortgage. If you are qualifying with your GROSS income, then it signals that you have LESS than a 35% down payment, and will also require an insurance premium to be added.

PRESS PLAY
|>

As we currently understand it, with the new rules, if you are a High Ratio file: less than 20%down (using NET income to qualify) or less than 35% down (using GROSS income to qualify) you will have to qualify at the benchmark rate of 4.64 instead of the lower, and more advantageous contract rate of, for example, 2.44% that we used BEFORE MONDAY’s announcement.

Starting on October 17th
, unless you already have a signed commitment in place on a property; no matter the lender, no matter who you are, no matter how many chocolate chip cookies you try to bribe me with (and you can TRY!) the days of qualifying at the contract rate for a fixed, high ratio mortgage are gone.

The end.
B’Bye.
Ciao.


If High Ratio sounds like your situation: save more, deduct less, get a co-signer, change your budget, change your desired location, and repeat. Or talk to me.

BUT.

BUT!!!!!!!

Let’s say you DO have a
Conventional file; you have 20% down, qualifying with your NET income; or 35% down, qualifying with your GROSS income - good for you!!! But, there is something about that property (maybe a small bachelor condo with only 400 sq. feet) or something about your file personally (a gift, low credit score, changed jobs, changed industries) that, overall, will only be accepted by lender X.

If 
lender X happens to be a mono - lender, your slam dunk down payment could be moot, and you will have to qualify at a higher benchmark rate (4.64%) eliminating your previous qualifying power at the lower contract rate, not because you don’t have enough cash, but because the lender is being held to a different standard than one of the other lenders, and passes that limitation along to you. Plot twist 101.

Well, then, why don’t I choose one of the BIG BANKS in my broker channel if they have been granted more flexible rules? 
Because the BIG BANKS might not accept the self-employed, or gifts, or you need a minimum square footage, or you need to personally guarantee that Donald Trump won’t win the American election. There are SO many boxes that need to be checked off for all lenders, I can’t just say, “let’s put you with THIS lender” because THAT lender might have a condition that you simply can’t meet. It’s a little like snakes and ladders: move ahead 5, go up the ladder, roll again, and you’re sliding back to the start. GAH!


*insert going to the fridge to see if there’s any pumpkin pie
left over from Thanksgiving*


I hope the pie helped because there’s a more detailed cause and effect summary
HERE
via First National.

My storytelling scenario (before your eyes glaze over and you unfollow me on Twitter and Facebook) touches on the more obvious, basic implications for the average Canadian (artist) home buyer.

If you fall into the other categories
(foreign buyer, rentals vs. owner occupied, capital gains tax implications, low ratio mortgage insurance, refinancing, 30-year amortisations...) we may need more than a meeting in a coffee shop to get us through the rules.


Thanks for reading...and sharing...and tweeting!
cardinalmortgages.ca



note: all opinions expressed on this blog are
my own entirely, and do not express the opinions or
views of Mortgage Brokers City.

This blog is intended to educate via the entertainment forum of a blog.
For your own, unique financial situation, contact me directly.