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(November 01, 2012 )

You've probably heard of the new mortgage rules handed down to Federally regulated financial institution through OFSI's (Office of the Superintendent of Financial Institutions Canada).  This email is a brief outline of these new rules.!Important!  These rules affect Federally regulated lenders such as Chartered Banks.  Credit Unions and other provincially regulated lenders are not subject to these changes.  What's Changing?  Stated Income/Equity Lending Changes:
  • Maximum 65% LTV (loan-to-value) will now apply to all Business for Self (equity lending) and new immigrant applications.
  • Confirmation of business will be required for all Business for Self applications regardless of LTV.
  • If the self-employed applicant can qualify based on their declared NET income, lenders ill still consider a purchase up to 95% LTV. 
Qualifying Rate Changes for Conventional Mortgages: 
  • Closed Variable Interest Rate Mortgages and Fixed Rate Mortgage terms LESS THAN 5 years - The greater of the Bank of Canada 5 year benchmark rate (currently around 5.24%) or the customer rate will be used as the qualifying rate.
  • Fixed rate mortgages with terms equal to or greater than 5 years - the actual customer rate will be used as the qualifying rate.
Down Payment:
  • Cash-back mortgages are not allowed to fund the down payment.  Down payments must now come from borrowed funds, gifts, and savings.  Some lenders are still offering a cash back product but you're not allowed to use this for the down payment anymore (Chartered banks and high-ration mortgages).
HELOC Changes:
  • Maximum LVR is 65% (please note: existing HELOC clients don't have to worry as these changes don't apply to them).
Tightening of Debt-Service Ratios:  Lenders and high-ratio insurance companies are tightening up how much of your income can be used to service debts. Property Appraisals:  Lenders are to show more prudence regarding valuating properties.  Look forward to lenders asking for appraisal reports on most properties they're mortgaging. 
Again, these rules are being enforced on the Chartered banks, although other lenders are adopting the more conservative policies as well.  As independent mortgage brokers we have access to the chartered banks AND the alternative lenders (Credit Unions, Trust Companies, Mortgage Companies) so we have the tools to work for you - and the new rules - to get your mortgage approved.