As the housing markets in Metro Vancouver begins to pick up, buyers are looking at rising prices at the same time that the federal government’s concern about the situation resulted in several rule changes over the past few months, making it harder for some to get mortgages.
On October 17, 2016, the federal government of Canada introduced new mortgage rules affecting borrowers across Canada. The new rules were meant to “Stress Test” and toughen the mortgage approval process; especially for borrowers with less than 20% down payment to make sure that mortgage affordability is not affected in the event of future rate increases. The federal government announced that all mortgage applications with less than 20% down payment must qualify based on the bank of Canada posted rate, which is currently 4.64%.
On November 30, 2016, the government imposed new restrictions for low-ratio or conventional mortgages that require mortgage insurance on the back end. After November 30, the maximum insurable mortgage even though conventional will not be available for properties over $1,000,000, investment properties and for amortizations over 25 years; these mortgages must also qualify based on the 5-year posted rate of 4.65%, regardless of the rate on contract.
Previous rule changes included tightening lending rules for homes worth more than $500,000, lowering the amortization period down to 25 years for high-ratio insured mortgages and tightening processes for mortgage approvals based on income, which can affect the self-employed.
These drastic changes have left some borrowers with less negotiating power with the banks. However, even those who would easily be approved by a bank may wonder whether to turn to a bank or a broker for a mortgage.
Opting for a mortgage broker allows for clients to have a one-stop shop when it comes to playing the field with lenders. When working with an independent broker, borrowers have direct access to some of Canada’s top mortgage lenders with over 400 different mortgage products to choose from and with just one credit check. Essentially, mortgage brokers have access to mortgage products that bank employees don’t.
Financial advisors at the banks are well versed in different areas, mutual funds, RRSP’s, car loans, business banking, but they may only do a few mortgages per year. There are, however, many questions that mortgage brokers would have the capacity and experience to answer, plus borrowers can have someone on their side to work in their best interests.
