New Stress Test Rules – KNOW YOUR NUMBERS

Michael Hallett • Feb 19, 2020
We have yet another new borrowing guideline that the federal government is amending, this one is positive. Here is the list of the summarized details:

  • Comes into effect April 6, 2020.
  • Applies to borrowers seeking financing with less than 20% down payment for insured mortgages
  • Not just for first time homebuyers, but everyone with less than 20%.
  • Overall qualifying rate will be reduced by approx 30 basis points or 0.30% currently at 5.19%.
  • This change is being made to bring the qualifying rate more in-line with the housing market.

This amendment to the qualifying rate will increase borrowing power, but how much?

Scenario #1 – current guidelines for INSURED mortgage until April 5, 2020

  • $80,000 gross household income
  • No debt, credit score is 680 or greater
  • $40,000 down payment
  • 25 yr amortization
  • Qualifying rate issued by the Bank of Canada is 5.19%

Maximum purchase price is $400,000 with maximum borrowing power of $360,000.

Scenario #2 – guidelines for INSURED mortgage as of April 6, 2020

  • $80,000 gross household income
  • No debt, credit score is 680 or greater
  • $40,000 down payment
  • 25 yr amortization
  • Qualifying rate issued by the Bank of Canada is 5.19%

Maximum purchase price is $415,000 with maximum borrowing power of $375,000.

These 2 scenarios are specific to this set of numbers. If any of these numbers are different, then so too is the outcome; income is higher or lower, credit score is less, there is revolving debt or a different down payment amount.

To summarize, this modification will increase ones borrowing power approximately 3-5% more. It could be the small bump one needs to get into owning their own piece of real estate or upsizing from their current home.

As always, please do not hesitate to call, text (604-616-2266) or email (michael@hallettmortgage.com) me with any and all questions as it relates to the mortgage industry.

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Protect Yourself at Renewal

By Michael Hallett • 15 May, 2024
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!

The Property Matters in Mortgage Financing

By Michael Hallett • 08 May, 2024
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.
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