20 Oct

5 Things You Can Do NOW To Qualify Under The New Mortgage Rules

General

Posted by: Jonathan Barlow

 

1  Manage your credit wisely.

2  Manage your credit carefully.

3  Manage your credit closely.

4  Be a Diva/Divo at managing your credit.

5  Don’t let your available credit manage you.

 

I know I said 5 things but really, it’s that important that I need to repeat myself five times.

Lets look at three families and their current mortgage and see if they qualify under the new “stress testing”. As a reminder, you must now qualify for a high ratio mortgage by using the government “posted “ rate of 4.64%, ensuring that your total debt servicing ratio remains below 44%. The important part to focus on here is not the qualifying rate, but the debt servicing limit. We’ll talk about why a little later.

Here’s a summary of the financial position of our three families. For demonstration purposes, the family income and mortgage terms are the same:

           

As you can see, the Bakshis and the Chans are underwater and not because of the mortgage financing! I’ve highlighted the pressure point for all three families, areas where they can make changes which will not only make their housing more affordable but their lives more liveable. 

Much has been made of the new rules and vilifying the government for putting in such rules – limiting the new homeowners entry point into the market, but the real enemy here is our consumer debt. A colleague posted a copy of his credit card statement showing that if he made the minimum payment, it would take 136 years to pay it off. Consumer debt allows the banks and other financial institutions to tie you to them for years and years and years. Because consumer debt is not insured by the government, the government has little voice in limiting its availability. The way they have chosen to attack the problem is through an area they can control – mortgage financing.

One other thought, we can all agree that mortgage rates will most likely go up over the next five years. Maybe not the 2% the government is testing for but what about a 1% hike? Do you think the banks and credit card companies will limit themselves to a 1% increase on your line of credit, variable rate car loan or even your credit card? Probably not, I’d say.

Maybe its time to be proactive and take a hard look at your finances?

As always, if you need any help, please feel free to call or email.

Regards,


JB

jbarlow@dominionlending.ca

778-230-2572

4 Oct

No The Sky Is Not Falling

General

Posted by: Jonathan Barlow

I admit it, when news of the new mortgage regulatory changes broke yesterday and I read the doom and gloom comments from some of my colleagues, I thought about going fishing, one of my other passions.

In a nutshell, the key change that affects you as a homeowner or potential homeowner, is that if you’re applying for a default insured mortgage or even applying for conventional mortgage financing anywhere other than your local bank or credit union, you’ll likely need to qualify for the financing at a rate about two percent higher (4.64%) than what you’ll actually pay. The government calls this “stress testing”; ensuring that you can still afford the mortgage if rates jump that high over the next few years.

It may sound like an entirely unreasonable premise but its important to realize that things change. Seventeen years ago, mortgage financing for Colleen and I was at a rate of 5.89%. At the time, I was asked by a couple of lenders how I had gotten away with that – it was a really good deal. I also remember my first job as a renewal clerk in Toronto in the ’80s. I processed renewals at 21% ( that’s not a typo).Things do change and we need to be ready for it.

Maybe its not such a bad test, then?

After thinking about it though, for me, nothing’s really changed. My job, providing you with the best possible financial advice, remains the same. In fact, its probably more important now than ever. That’s good, because I’m passionate about it ( like fishing). After all, who in their right mind would spend 25 years providing advice if they weren’t passionate about it. I grant you, there may be fewer opportunities at first to find mortgage financing for you- which is how I earn my living – but I’m pretty sure it will turn out all right, for the both of us.  

So, we’re all good right? Good, thanks, I feel better!

Lastly, if someone were curious about whether they qualify today using the new rules, someone could easily go to the TDS calculator at the CMHC website and put in the numbers and see what happens. If you’re exceeding the qualifying TDS of 44% now, I pretty much guarantee you that its not because of your mortgage, which is about the cheapest money you’ve borrowed. (Hint – Take a Look at Your Personal Debt). If it causes you concern, go see a Mortgage Professional and let them do their jobs – providing really great financial advice.

As always, if you have questions or want to get some advice, just call or email.

Regards,

JB

Jonathan Barlow
778-230-2572
jbarlow@dominionlending.ca