These new rules have been approved and are now in the process of being implemented by all Federally Regulated Financial Institutions (FRFIs) across Canada. They have to be in place by each lender’s year end (by December 31st, 2012 at the latest).
Some banks are now changing the maximum loan to values from 80% to 65% on their home equity line of credit (HELOC) and re-advance able mortgage lending limits.
To date, we have not seen the Canadian press write about these changes.
We have spoken to several major lenders (off the record) to confirm we understand what this means for Canadian borrowers.
Following is a summary of these changes:
*Home equity lines of credit (HELOCs) and re-advance able mortgage products will be limited to 65% of a home’s value (currently available up to 80%).
*No money down” and “cash-back” mortgage programs may disappear. This will mainly impact first-time buyers.
*Non-conforming loans will have a maximum 65% loan to value (LTV) with more awareness and documentation surrounding acceptable income.
*Use of the MQR (Mortgage Qualifying Rate) on all conventional mortgages with terms below five years. As an example, this means using a 5.2% rate rather than a 3.3% rate for qualification on all variable-rate and fixed-rate mortgages with terms under five years.
*Less reliance on automatic appraisals and more use of onsite inspections.
*Existing mortgages and lines of credit will be grandfathered in.
Self-employed borrowers and customers with challenging credit may be limited to financing at 65% loan to value. Private financing will always be an option
There will be more documentation required and questions being asked by all lenders, especially in the “B” area around income. This translates into a greater importance for the collection of all supporting documentation up front.
With changes such as these, it makes it even more important that our clients are well informed. Working with full-time, trusted, seasoned professionals who have access to an array of lenders will be more important than ever moving forward.
Let me know if you have any questions.