Mortgage Rule Changes: What Do They Mean?

Lets take a person earning $60,000, no debt and a credit score less than 680. Today this person could qualify for $353,000 in mortgage amount based on a 30 year amortization. After July 9, this same individual would be limited to $312,000 mortgage based on a 25 year amortization.

Now lets take this same individual and suggest a credit score greater than 680. Today this person could qualify for $455,000 based on a 30 year amortization. After July 9, this same individual would be limited to $356,000 on a 25 year amortization.

Aside from the obvious qualifying standpoint, limiting mortgage default insurance to homes under $1 Million will also have an effect, or will it? I came across an interesting article that would suggest this change might be more about politics than protection. Full article here…

In the mean time, these new rules will take effect July 9, 2012. That said, all new mortgage submission after June 22 will have to be firmed up on or before July 8 and fund by Dec 31, 2012, otherwise, the new rules will apply.

Now pay attention, here is what I think is more important than yesterday’s announcement.

Aside from yesterday’s announcement, I would like to take this time to share a couple of more changes that I think will have a greater impact on our market. These changes have been talked about over the past few weeks and are about to be mandated into practice by the bank regulatory body, OSFI. We are currently awaiting clarification of a few of the changes, but here a couple we know.

• The maximum loan to value of a HELOC will drop from 80% to 65%. This will effect those who leverage HELOC’s for productive purposes ie. those utilizing their HELOC as a low cost borrowing source for income generating investments or small business ventures.
• A tougher qualifying rate is being introduced for conventional mortgages. For all variables and fixed terms less than 5 years will be subject the greater of the benchmark rate or the contract rate which ever is greater. Currently, this rule only applies to high ratio mortgages.
• The 5% cash back programs which allow for the cash back to be used for down payment, will be no longer. This effectively eliminates the 100% financing.

This is a lot of information to digest in one sitting. I would encourage you to give us a shout with any and all questions, 403.242.5547.

Tags : HELOC, Mortgage rule changes, mortgage rules, shorter amortizations