For The Record – e-mail From Mortgage Broker Regarding Rule Changes

“Here is an email I received from a mortgage broker who sends me spam emails in disguise of information….just though you may find it interesting…

Dear xxxx:

Last week the Ministry of Finance and OSFI (Office of the Superintendent of Financial Institutions) announced several new tougher guidelines for mortgage qualification. This week it’s apparent that many borrowers are unaware of 2 important details:

1. The Effective Date of the new rules is July 9th (in 7 business days). * Applications must be submitted before this date;
2. BOTH Insured and Conventional (Uninsured) mortgages are affected.

Briefly, the major changes are:

REFINANCE
* Maximum LTV (Loan-to-Value) reduced from 85% to 80%.
* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%

PURCHASE
* Maximum Ammortization reduced from 30 to 25 Years.
* Maximum GDSR (Gross Debt Service Ratio) reduced from 44% to 39%.
* Maximum Purchase Price now $1M.

Additional Changes:
* Line-of-Credit LTV reduced from 80% to 65%.
* Increased Qualifying Interest Rates.
* Increased income verification / reasonability tests for ‘Stated Income’
* Cash Back programs may no longer be used for Down Payment.

Some affects of the new rules are obvious, such as greatly reduced purchasing power. Example: A borrower with an annual income of $65K and 5% Down Payment can purchase a $500K home before July 9th and a $410K home after the deadline. However, many of the affects aren’t as apparent for existing borrowers. Example: If the same borrower with an annual income of $65K purchased a home 4 years ago at $500K with 10% Down Payment and Variable Rate Mortgage at Prime -.75% with 35 Yr. Ammortization, even with a 5% Property Value increase ($525K), the current Loan-to-Value is 83%. After July 9th, the borrower would Not qualify for their existing mortgage both because their service ratios and Loan-to-Value are exceeded. Therefore, they are unable to shop competitively for Refinance, Transfer, Debt Consolidation, Equity Take-Out etc. and most likely limited solely to the Conversion and/or Renewal offers (ie. Posted Rates) from their existing lender.

Considering the new rules are intended in part to cool the housing market (and possibly reduce values), an increasing number of borrowers could be affected.

Today’s Best Fixed Rates:

1 Year @ 2.89%
3 Year @ 2.69%
4 Year @ 2.95%
5 Year @ 3.05%
10 Year @ 3.83%

Very Best,
xxxx”

too much debt at VREAA 28 Jun 2012 8:21pm

5 responses to “For The Record – e-mail From Mortgage Broker Regarding Rule Changes

  1. “After July 9th, the borrower would Not qualify for their existing mortgage both because their service ratios and Loan-to-Value are exceeded.”

    Per the example above, I thought the borrower would be “grandfathered”, i.e. not affected by the new rules? Admittedly, I am confused.

  2. Ralph Cramdown

    Note that ‘affect’ used as a noun is obsolete except in psychology/psychiatry. This mortgage broker is obviously a (former?) head shrinker.

  3. I too am curious if this broker got it right.

    I can’t imagine peoples rates resetting to posted rates in the next few years. Thats a big difference from the discount rates…

    These rule changes are definitely interesting.

    Also, 65k a year, 5% down qualifies you for a 500k purchase?!?. My mind is blown. Have fun servicing that debt for… ever?

  4. I like his redefinition of “purchasing power.”

  5. I’m sure this broker is nice, but I don’t know if I would have the most faith he or she will be able to competently look after my best interests. No offence, it’s just business.

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