Ever since the new mortgage rules were announced earlier in October, they have been the talk of the town. Despite all the media attention, there seems to be a lot of confusion surrounding them. I want to help clear some of that up with this blog post.
October 17th was the big day where the new mortgage rules came into effect. A lot of first-time homebuyers circled this date on their calendar and rightfully so. Under the new mortgage rules, first-time homebuyers lost about 20 percent of their purchasing power. In our last post, we showed how a couple that could afford a home valued at $665,435 under the old rules, could only afford to spend $521,041 on a home under the new rules. That’s a loss in purchasing power of $144,304 – ouch!
Second Set of Mortgage Rule Changes
That’s not the only date homebuyers need to be concerned about. The second round of mortgage rule changes come into effect November 30th. The mortgage rule changes that came into effect on October 17th only affected high-ratio mortgages (those with a down payment under 20 percent), but the November 30th rules changes also affect conventional mortgages (those with a down payment of 20 percent or more). That means even if you have a down payment of 10 percent or 30 percent and your lender wants to insure your mortgage, you’ll have to qualify under the new, tougher mortgage rules.
Now you may be wondering why a lender would want to insure your mortgage if you have at least a 20 percent down payment. Lenders buy mortgage insurance for low-ratio mortgages that carry more risk. However, starting November 30th, low-ratio mortgage insurance will no longer be available for the following mortgage types and features: refinances, rental properties, mortgages over $1 million, stated income and 35 year amortizations.
What does this mean for homebuyers who fall into one of those categories? After the new rules come into effect, lenders may no longer offer mortgages to self-employed individuals or for rental properties. For the lenders that choose to still offer these mortgages, they may choose to raise their mortgage rates to compensate for the added risk.
On a side note: if you already have a mortgage, you can breathe a sigh of relief. The new mortgage rules won’t affect you if you have an existing mortgage or your mortgage is up for renewal.
More Changes on the Way?
If we haven’t had enough changes to the mortgage rules, there could be more changes on the way. Right now when a homebuyer defaults on a mortgage, the CHMC covers the loss, but that could change. The federal government is toying with the idea of having mortgage lenders pay a deductible on each mortgage insurance claim (similar to the deductible on your home or auto insurance). Although this remains to be seen, this would likely lead to lenders passing down the increased cost to homebuyers in the form of higher mortgage rates.
Are you still confused by the new mortgage rules? We have a team of experts on hand to assist you and crunch the numbers. Feel free to contact our office today.
