Without question, the past few months in the mortgage industry have been challenging. There have been numerous changes that have completely altered the mortgage lending landscape. Here is a summary of the changes we have seen:
1) Stress Test: As of October 17th, all insured mortgages (typically mortgages with less than 20% down payment) now have to be qualified at the benchmark rate. The benchmark rate is a posted rate set by The Bank of Canada that currently sits at 4.64%. Prior to this change, most mortgages were qualified at the contract rate (the actual rate the borrower receives). The typical contract rate is currently in the 2.69% – 2.99% range for a 5 year fixed term.
2) Insured Mortgage Limitations: Along with the October 17th changes, the government also imposed limitations on which type of mortgages could be insured and how much that insurance would cost. Most consumers would think that only mortgages with less than 20% down payment are insured but, in fact, there are many lenders that insure all of their mortgages for added security. Those lenders pay the insurance costs themselves (when there is more than 20% down) so the cost is generally not passed on to the consumer. Without getting into too much detail, these lenders have now been forced to limit their product offering, as not all mortgage types can be insured under the new rules, and have had to increase rates on some products due to the new insurance limitations that have been imposed.
3) Increases Insurance Premiums: Just when we thought that the changes were done, CMHC (government) announced in mid January that mortgage insurance premiums would be increasing in March. I believe this is the third time in four years that they have increased premiums. This change will be felt mainly by people buying homes with less than 20% down payment. It wasn’t that long ago that the insurance premium for a buyer with 5% down was 2.75% of the mortgage amount. They will now be paying 4%. On a $250,000 mortgage, this represents an increase of $3125 being added to the mortgage amount. In my opinion, this round of insurance premium increases was fairly significant.
4) Increased Interest Rates: On top of all the changes we have seen over the past few months, interest rates have also trickled up by about a .25%. Our average 5 year fixed rate was about 2.44% a few months ago. Rates are now in the in 2.69% – 2.99% range, depending on the parameters of the application. While no one likes to see an interest rate increase, this is by no means a major increase. Historically speaking, rates are still very low so we should continue to enjoy them while they last.
All of these changes will make for interesting times moving forward. It is not a time to be discouraged or think that applying for a mortgage will be impossible. If anything, it is more important than ever to ensure you are receiving sound mortgage advice from a professional who fully understands the mortgage landscape. There are still plenty of great mortgage options out there and rates remain very low.