Mortgage guidelines have been tightening since the economic crisis in 2008. The days of 40 year amortization and zero down-payment have been eliminated.
We will see more restrictions in place by October 31, 2012 for major banks and to March 31, 2013 for other institutions.
One of the upcoming changes affects lines of credit (LOC), also known as home equity lines of credit (HELOC). Currently the maximum HELOC amount is 80 per cent, this will drop to 65 per cent by above dates and possibly before. Similar to a mortgage, lines of credit are secured by your property. Lines of credit are open (able to lump sum or pay off at any time without penalty) with a variable rate, often as low as prime plus .50 per cent or .75 per cent. Monthly payments can be as low as interest only.
The new rules allow for financing from 65 per cent to 80 per cent, but that portion must be as an amortized mortgage, therefore payments are blended, principal and interest.
All self-employed borrowers will be required to provide ‘reasonable’ income verification; stated income mortgages will be a thing of the past at mainstream lenders. Any cash back incentive cannot be considered part of the down payment, this will effectively eliminate 100 per cent financing.
Another change includes qualifying rates being toughened for conventional mortgages. The qualifying rate for variable and fixed terms less than five years will be ‘the greater of the contractual mortgage rate or the five year benchmark rate published by the Bank of Canada’.
This may push a small number of borrowers into five year fixed mortgages because they won’t qualify for shorter terms.
Anyone with a mortgage or line of credit or anyone contemplating obtaining a mortgage should meet with their advisor and review their net worth planning. It doesn’t have to be a case of rushing to get into debt before the mortgage rules change, it should be a conscious review of your options, what works best for you, and a stable and comfortable future.
It can pay to book an appointment with a mortgage professional, to have a quick look at where your money is going, discuss what interest rates are up to, and determine if you are getting the most use out of your mortgage features.