2 Nov

The New Normal

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Posted by: Bonnie Barker

’Tis the season… this was no surprise here! The latest round of mortgage guidelines has been announced by OSFI, or Office of the Superintendent of Financial Institutions. As of January 1, 2018, all conventional or uninsured mortgages will have to qualify at the Bank of Canada 5-year fixed rate or the contractual rate + 2%, whatever is greater.
What does this mean? Nothing for anyone wanting to renew or buy real estate with less than 20% down.
But anyone wanting to access their equity might just have to consider a slightly lower amount. And those wanting to purchase real estate with 20%+ down may need to adjust their expectations or relocate their search area.
Regardless of your scenario, there will still be options to exercise.
Next question on many people’s minds is how this will affect prices. Based historical data, I predict that there will be very little decrease in prices. Most people thought the ‘bubble’ was going to explode. Most comments were, “It just has to, how can prices continue to increase?” Well guess what… prices have continued to increase. Some market segments will experience a slight softening, but nothing drastic.
Here is a list of changes issued by OSFI since 2006. Did any of them bring prices down?

Maximum amortization 40 years
100% financing, 0% down payment

Maximum amortization 35 years
Maximum 95% financing, minimum 5% down payment required

Maximum amortization 30 years
Refinance maximum 85% of the market value

Maximum amortization 25 years
Refinance maximum 80% of the market value
If mortgage insurance is required, then the maximum purchase price of the owner-occupied home is $1,000,000

Minimum down payment – 5% of the first $500,000 and 10% on the portion remaining

Qualification rate increases to Bank of Canada benchmark rate for all insurable files (less than 20% down)

Conventional (20% down or greater) stress test increases to contract rate plus 200 basis points (2%) or the Bank of Canada benchmark rate, whatever is greater

What will happen in 2018?

There is no need to slam your fist on the panic button. This is simply the new normal for mortgage finance consumers. The sun will still rise in the east and set in the west. The earth will continue to rotate in a counterclockwise direction. People will still buy and sell real estate. Those consumers with available equity will still have access to it and borrowers will still renew existing mortgages. If you are receiving or buying into “the world is ending” type information, please look away… it’s wrong and misleading.
Nothing changes.
If you are worried about things you cannot control, stop it! If you are going to put any energy into something, I would recommend building a bulletproof personal borrowing profile. More than ever it’s vitally important to have AAA credit, minimal-to-zero consumer debt and strong reliable income and savings. If you start with that, I can assure you everything will be OK!
If you have any plans to become an active mortgage consumer, start looking at your options now as some lenders will adopt the new rules before January 1, 2018.

11 Apr

Insured, Insurable & Uninsurable vs High Ratio & Conventional Mortgages


Posted by: Bonnie Barker

Insured, Insurable & Uninsurable ss High Ratio & Conventional Mortgages

You might think you would be rewarded for toiling away to save a down payment of 20% or greater. Well, forget it. Your only prize for all that self-sacrifice is paying a higher interest rate than people who didn’t bother.

Once upon a time we had high ratio vs conventional mortgages, now it’s changed to; insured, insurable and uninsurable.

High ratio mortgage – down payment less than 20%, insurance paid by the borrower.

Conventional mortgage – down payment of 20% or more, the lender had a choice whether to insure the mortgage or not.


Insured –a mortgage transaction where the insurance premium is or has been paid by the client. Generally, 19.99% equity or less to apply towards a mortgage.

Insurable –a mortgage transaction that is portfolio-insured at the lender’s expense for a property valued at less than $1MM that fits insurer rules (qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%).

Uninsurable – is defined as a mortgage transaction that is ineligible for insurance. Examples of uninsurable re-finance, purchase, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1MM, (re-finances are not insurable) equity take-out greater than $200,000, amortization greater than 25 years.

The biggest difference where the mortgage consumers are feeling the effect is simply the interest rate. The INSURED mortgage products are seeing a lower interest rate than the INSURABLE and UNINSURABLE products, with the difference ranging from 20 to 40 basis points (0.20-0.40%). This is due in large part to the insurance premium increase that took effect March 17, 2017. As well, the rule changes on October 17, 2017 prevented lenders from purchasing insurance on conventional funded mortgages. By the Federal Government limiting the way lenders could insure their book-of-business meant the lenders need to increase the cost. We as consumers pay for that increase.

The insurance premiums are in place for few reasons; to protect the lenders against foreclosure, fraudulent activity and subject property value loss. The INSURED borrower’s mortgages have the insurance built in. With INSURABLE and UNINSURABLE it’s the borrower that pays a higher interest rate, this enables the lender to essential build in their own insurance premium. Lenders are in the business of lending money and minimize their exposure to risk. The insurance insulates them from potential future loss.

By the way, the 90-day arrears rate in Canada is extremely low. With a traditional lender’s in Canada it is 0.28% and non-traditional lenders it is 0.14%. So, somewhere between 99.72% and 99.86% of all Canadians pay their monthly mortgage every month.

In today’s lending landscape is there any reason to save the necessary down payment or do you buy now? Saving may avoid the premium, but is it worth it? You may end up with a higher interest rate.

By having to wait for as little as one year as you accumulate 20% down, are you then having to pay more for the same home? Are you missing out on the market?

When is the right time to buy? NOW.

Here’s a scenario is based on 2.59% interest with 19.99% or less down and 2.89% interest for a mortgage with 20% or greater down, 25-year amortization. In this scenario, it takes one year to save the funds required for the 20% down payment.

  • First-time homebuyer
  • Starting small, buying a condo
  • 18.9% price increase this year over last

Purchase Price $300,000
5% Down Payment $15,000
Mtg Insurance Premium $11,400 (4% as of March 17, 2017)
Starting Mtg Balance $296,400
Mortgage Payment $1,341.09

Purchase Price $356,700 (1 year later)

20% Down Payment $71,340
Mtg Insurance Premium $0
Starting Mtg Balance $285,360
Mortgage Payment $1,334.40

The difference in the starting mortgage balance is $11,040, which is $360 less than the total insurance premium. As well, the overall monthly payment is only $6.69 higher by only having to save 5% and buying one year sooner. Note I have not even built in the equity that one has also accumulated in the year. The time to buy is NOW. Contact your local Dominion Lending Centres mortgage professional so we can help!

10 Feb

New Mortgage Rules and Their Impact

Latest News

Posted by: Bonnie Barker

A short time ago Canada Mortgage and Housing Corporation (CMHC) changed the rules on how much down payment buyers have to have in place to buy a home worth more than $500,000. The new rules stated that you have to have 5% on the first $500,000 and 10% on the remaining balance up to $999,999. After that point they require 20% but that’s another article altogether.

With the recent changes, they also allowed for the use of 100% offset should the home have a legal suite. This was great news for some parts of the country as housing costs increased over the million dollars in prices in Vancouver and Toronto. Does it have much effect on other parts of the country?

Recent numbers would say no. With housing prices in the west decreasing just about everywhere else but Vancouver, the average Canadian first time buyer will not likely apply for a mortgage that is in this price range. The idea of wanting the big home as the first home is something that first time buyers will not be doing. Even in the Vancouver markets, the buyer for the million plus property is most likely a move up buyer.

I look at my own nephews and nieces and they have bought closer to their lifestyles. My niece in Vancouver, who is a single young professional, chose more the loft style home and while living in 400 sq ft. is foreign to most of us, it is a choice she had to make to be in downtown Vancouver and able to walk to work.

Probably where we have seen the biggest impact of these new rules is in Ft McMurray, AB. While prices are down  in Ft McMurray, there are still a lot of homes that are in the $850,000 to $900,000 range – most built during the boom times with full legal suites.

I recently had a file that was in the $900,000 price range with a full legal suite. While the clients had the required down payment of 5% and 10% on the balance of the mortgage, the lender decided they wanted 20% down on the property even though CMHC had said yes to the mortgage. I’m sure this is happening in more than one location across Canada especially in areas where the prices have been fluctuating up and down over the last few years.

With ever changing markets and regulations, be sure to get advice from your Dominion Lending Centres mortgage professional before you buy your dream home.