Upcoming changes to mortgage lending guidelines, the rules of borrowing, take effect Jan. 1, 2018 and while there’s been a fair bit of press coverage on this, there is also a fair bit of confusion.
What is NOT happening
Interest rates are not specifically rising Jan 1, 2018.
Although there is a Bank Of Canada meeting Jan 17th, which is the next time variable rate mortgage holders would see a potential change, the current expectations are that there will be no change to Prime rate anytime soon.
What IS happening
A reduction of ~20 per cent-plus in maximum borrowing power for those with a 20 per cent or GREATER down payment.
You read that correctly: a big borrowing reduction for the group with the bigger down payments.
Why is this happening?
To protect you from yourself. So says the current federal government.
Not due to any material increase in risk or arears. In fact current mortgage arrears rates are hovering around 0.29%, and when Canada was subject to a massive global economic meltdown in 2008 our arears were just 0.41%.
A high of 0.41% in 2008 based on clients who had qualified for mortgages under far more lax standards of 2007 and earlier. Since 2008 when the first round of lending restrictions were put in place, we’ve had annual restrictions added every year since.
Who is affected?
The first group is the Have-Nots.
You have no mortgage at all, but do have a pre-approval. Pre-approval may or may not protect you for the first 119 days of 2018. A select group of lenders have confirmed they will grandfather existing pre-approvals under the 2017 lending rules for up to 120 days. However many lenders will not; for them Jan. 1, 2018 is a hard stop on the old lending rules. Still others are already enforcing the new rules.
The question is what is your lender going to do? Not all lenders have announced their policies yet.
The best advice: pick up the phone and call your mortgage broker and find out where you stand.
Question#1: Do the new guidelines affect you?
Question#2: If Yes to Q #1, is your pre-approval going to be grandfathered with the lender that holds it?
The second group is the Haves.
You already have a mortgage in place, so everything is all cool, right? Maybe.
Are you thinking of increasing your mortgage amount by even just $1?
Are you thinking of adding on a secured line of credit for even just $1?
And most importantly: Are you thinking of moving your mortgage to a new property in 2018?
To add new money, or to move the mortgage to a new property, you’ll trigger a re-evaluation under the new rules, and many Canadians will not qualify for the very mortgage they currently have, even for something is seemingly simple as moving it to a new property – even with a reduction of say 10% or 15% of the balance… a mortgage they may have just taken a few months earlier.
Sure, your mortgage is most likely ‘portable’, but under the new guidelines it’s only portable with a complete re-qualification.
Who is safe?
Those simply renewing their current balances.
None of these changes affect you if you are renewing your mortgage for the exact same amount with the same lender.
But, before you renew, make sure you pick up the phone and find out whether you can do better elsewhere, that is what we are here for.