Lately, there has been a lot of discussion in the media as to whether mortgage rules will tighten up again, or will begin to soften, it is hard to say which direction policy-makers will lean.

 

Without a doubt, the process of obtaining financing has changed dramatically over the last decade, and many of the rules were introduced within the last 5 years.  If you have not been through a new purchase or a refinance since all these changes have taken place, this article is for you.  In fact, when I researched the rule changes since 2008 for this blog post, it would have taken 11 pages to print… and that is just since 2008 alone! 

 

Here is a recap of some the rule changes over the last decade:

 

2008

• Amortizations reduced from 40 years to 35 years

• Minimum 5% downpayment from your own resources is required

• Lenders required to obtain sufficient evidence of a property’s value and a borrower’s income

 

2010

• Fixed & Variable terms under 5 years must be qualified at the 5-yr posted rate (qualifying rate)

• Refinance amounts are reduced from 95% to 90% of the value of the property

 

2011

• Amortization is reduced from 35 years to 30 years

• Refinance amounts are reduced from 90% to 85% of the value of the property

 

2012

• Refinance amounts are further reduced from 85% to 80% of the value of the property

• Maximum amortization is shortened from 30 years to 25 years on insured (high-ratio) mortgages

• New Gross-Debt Service (GDS) and Total-Debt Service (TDS) Ratios of 39%/44%, respectively, are implemented for Borrowers with credit scores 680 and higher

 

Wow… no major rule changes for a couple years, and then:

 

2015

• For homes over $500,000, 10% downpayment is required on the amount over $500,000 (the rule did not take effect until Feb 2016)

 

2016

• 15% Foreign-Buyers Tax introduced in Vancouver to cool the market

• Mortgage Insurers re-assess criteria for Capital Requirements, which include:

  • Loan-to-Value and Type of Mortgage

  • Credit Score

  • Length of time since last credit report was pulled

  • Likelihood of a Borrower’s credit score going up or down

  • Amortization period

  • How long the mortgage insurance policy has been in place (applicable to lenders)

  • Region where the property is located

• All High-Ratio mortgages (less than 20% downpayment) to be qualified with the 5-year posted/qualifying rate

 

2017

• Ontario introduces 15% Foreign Buyer Tax in their “Fair Housing Plan” attempt to cool the market

• B-20 Stress Test drafted and finalized indicating that underwriters must assess borrower affordability based on the higher of their contracted mortgage rate + 2%, or the 5-year Benchmark Fixed Rate as determined by the Bank of Canada

  • Stress-Test requirements must also include:

    • indended use of the loan (purchase or refinance)

    • type of purchase must be distinguished (owner-occupied, rental, investment)

    • type of refinancing (debt consolidation, investment, etc.)

 

2018

• Stress-Test is effective Jan 1

 

So, what does this mean for 2019? 

 

In the past few days, there was talk of even more regulation and applying the B-20 Stress-Test to Private Mortgages, but that was dismissed.  There were also some talks of de-regulation, and easing of some mortgage qualification rules, like increasing the amortization back to 35 years, and debates as to whether the B-20 Stress-Test provides a “fair” indicator of whether clients can support rate increases.  No matter what changes occur, I will be sure to keep you up-to-date and let you know how it can impact you.

 

- Dwight Trafford