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New Mortgage Rule taking effects in the coming months

Writer's picture: Simon BilodeauSimon Bilodeau

Dear reader,


This month, there are going to be two newsletters. Today I will be discussing the new mortgage rules that will take effect in the coming months, and on October 23rd you will receive the bank of Canada rate update. The election in BC will also see local changes in some real estate rules, but those changes are winner dependent, and their timeline is a bit murky. So, they will be discussed when officially announced by the governing party after the election. 


High loan to value mortgage (High ratio mortgage)


The Federal government announced that they will be making a reform to the high loan to value mortgage program. This is the program that allows you to purchase a property for less than 20% down payment. The incoming change will take effect on December 15th, 2024. The program is now expanded to purchase up to 1.5M from 1M. The minimum down payment will be 5% of the first $500,000 and 10% of the remaining. This means that you could essentially purchase a 1.5M house with only $125,000. To qualify for this purchase at the current best rate of 4.29% a person, or couple, will be required to make a minimum of $310,000 per year to make this purchase. Another change that is significant will be the capacity to get a 30 year amortization for First Time home Buyer (FTHB)  and any buyer purchasing a new property (directly from the developer). To be considered a FTHB, one of the following conditions must applies:


  1. The borrower has never purchased a home before.

  2. The borrower has not owned or occupied a principal residence in the last four years (Includes a property owned by a spouse). So if you moved from Toronto to Vancouver 5 years ago and have rented since, you qualify.

  3. The borrower has recently experienced a breakdown in a marriage or common-law relationship, in line with the Canada Revenue Agency’s approach to the Home Buyers’ Plan.

For the example of a purchase of 1.5M with $125,000 down payment and a rate of 4.39%, FTHB will need to make a minimum of $290,000. 


Also, starting on January 15th, 2025, the program will now be able to be used to refinance a property to up to 90% of its value. This will be possible, only if you are adding a suite. The maximum property value will be 2M (including the new suite) and the amortization period will be allowed to be 30 years. Many details on this program are still missing because the first announcement on this was done on October 8th, 2024. 


What does this mean for you, if you are looking for a property and that you do not have enough down payment starting in December, you will have a greater purchasing power. Keep in mind that a larger mortgage will require a larger income for an approval. By looking at my own customers, many people will benefit from the change up to about 1.25M purchase price. This also means that the competition will increase for those properties in the 1M to 1.3M range. This has a potential to see price rises in that market segment. This is also a great way for people hoping to acquire a new built home that will fit their needs. This is also a builder's dream because more people will now be able to qualify for the homes that they will build. Hopefully, this will allow the supply that we need to be built in the coming years. Yes, we still have a housing supply problem, even if the current market does not show it. When the economy improves and rates continue to go down, demand will pick up and the problem will be back on the front page of all the news outlets. 


Another change coming to the mortgage world is the increase in competition for people renewing their mortgage. On November 21st, 2024 the Office of the Superintendent of Financial Institution (OSFI, the bank regulator) will no longer require people to pass the stress test when renewing their mortgage and changing lender. The stress test is the fact that we need to use either 5.25% or your rate + 2%, whichever is higher, when calculating your mortgage payment to qualify you. This effectively cuts around 30% of your borrowing power. 


Your current lender, at renewal, will do two things, verify that you made all your payments on time and verify that you have good credit. They want to make sure that you are not bankrupt. They do not verify your employment or anything else. If you made all your payments on time and are not bankrupt, they send you a letter with their new offer. If they estimate that you cannot change banks they will make you a bad offer. If they think that you can change lenders they will make you a better offer. The most common reason why people were not able to change lender was that they added some debt to their files. The most common debts are car loans and credit card debt due to small home improvement/redecorating. A new lender will always reverify your income, your amount of debt and it was using the stress test. By removing the stress test, it becomes much easier to qualify for a new lender and will allow people to get a better rate at renewal. Keep in mind that the mortgage amount and the time left on your mortgage cannot change. If you want to borrow some money from your equity, this will be considered a new mortgage and the stress test will apply. 


This also will not put the banking system at risk. The reason is that people have already proven that they can handle their mortgage and other debt. They will also get a better rate due to the increase in competition. Making their new payment a little bit better than the one offered by their current lender. It is also important that the new lender did verify the borrowers' ability to repay its loan, which was not done by the previous lender.     



These are the most important changes announced by the federal government in the last few weeks. If you have more questions about those changes, do not hesitate to contact me.  If you need a pre-approval or renewing your mortgage soon here is a link to make an appointment:



Sincerely,


Simon Bilodeau and Gina Lopez

Mortgage Broker

DLC-Mortgage Negotiators

604-828-9864



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