Archive for the 'Canadian Mortgage Rules' Category

August 27, 2018

Helping Clients Find A Down Payment They Can Afford

One dollar isn’t that much money in the grand scheme of things, but when it comes to buying a house it can make all the difference.

Back in February of 2016, Canadian mortgage rules tightened concerning mortgages over $500,000. The Canada Mortgage and Housing Corporation (CMHC) announced changes to the required down payments.

This is how much down payment is required per house purchase price:

Purchase price of home: $500,000 or less

Minimum down payment required: 5% of the purchase price

Purchase price of home: $500,000 to $999,000

Minimum down payment required:

  • 5% of the first $500,000 of the purchase price
  • 10% for the portion of the purchase price above $500,000

Purchase price of home: $1 million or more

Minimum down payment required: 20% of the purchase price

Those who are self-employed or who have poor credit history may be required to provide a larger down payment. With new mortgage stress test rules, it may be beneficial for a client to put down a more significant down payment to pass the stress test.

This might be a miniscule difference when it is on a smaller scale, however, it can quickly increase.

Take for instance a client who wants to purchase a $400,000 house vs. a $600,000 house ($20,000 minimum down payment vs. $35,000 minimum down payment). Or a client who wants to purchase a $900,000 house vs. a $1.1 million house ($65,000 vs. $220,000 minimum down payment).

It’s possible that real estate sales professionals might not even feel this impact because people are getting declined when looking for mortgage pre-approvals, therefore they never engage a real estate agent.

How can you help a client who wants to buy, and is on the line?

  • Independently check the values of interest properties. Make sure the property values are in line with the price being advertised.
  • Look for pockets where the client could get into the market – different neighbourhoods, dwelling types, etc. One neighbourhood might be out of their range, but they could get the same-sized house a little further away.
  • Review different scenarios with the client so they set realistic expectations. For instance, while the $1.1 million house may have different features from the $900,000 house, the down payment would cost at least $155,000 more. Similarly, the $400,000 may not have all the features as the $600,000 house, the down payment would be at least $15,000 less.

GeoWarehouse has the tools that make you the property expert. Help your clients find the properties and neighbourhoods where they can make the minimum down payments with ease.

Learn more about our property reports and neighbourhood search features at www.geowarehouse.ca.

Facebooktwittergoogle_pluspinterestlinkedinmail

Are desperate homebuyers being pushed into sidestepping Canadian mortgage rules in favour of shadier methods of financing? Some Canadians may be having a harder time buying a home due to the change in mortgage rules last year.

Now that the Bank of Canada has raised the overnight rate, and new federal mortgage rules have made it that much harder for customers looking for short-term mortgages, home renovation loans, or debt consolidations, many homebuyers or home refinancers may be forced to consider turning to riskier alternatives for financing their home.

Canada’s financial watchdog is advising regulated subprime mortgage providers to avoid partnerships with unregulated providers who may skirt the rules that were put in place to end risky lending in the first place! The Office of the Superintendent of Financial Institutions (OSFI) recently suggested banning co-lending arrangements, or bundled mortgages, that sidestep rules designed to stamp out risky lending.

Lenders can offer combined mortgages worth up to 90 percent of a property’s value with a “bundled loan” or co-lending agreement with an unregulated rival. However, federal rules prohibit regulated lenders from lending more than 65 percent of the value of a home to borrowers with bad or no credit. They also can’t lend more than 80 percent even to borrowers with good credit without government-backed insurance.

However, with “bundled loans”, lenders can offer borrowers up to 90%, circumventing rules on how much mortgage providers can lend against a property. As Canadian regulators tighten lending standards to shield borrowers in case a decade-long housing boom goes bust, these arrangements have increased in number.

Under Canadian mortgage rules, all high-ratio insured homebuyers are required to take a ‘stress test’ to qualify for mortgage insurance at a rate that is greater than their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. With the rising level of debt amongst Canadian consumers and the rising costs of houses, this means more people may not qualify for a mortgage and choose risky lending alternatives. Now, the OSFI is proposing requiring stress tests for all uninsured mortgages and adjusting maximum lending amounts for local market conditions.

Are buyers with poor or no credit left with no choice but “bundled loans”? Do they put Canada’s real estate market at risk? Are the new rules helping at all, and if so, how? As a real estate professional, tell us how the recent changes to Canadian mortgage rules and rate increases have changed the way you do business. Join the conversation @GeoWarehouse.

To learn more about the tools and resources available with a GeoWarehouse subscription, visit www.geowarehouse.ca.

Facebooktwittergoogle_pluspinterestlinkedinmail

Browse by Category