HOT SELLERS Market + Federal Goverment Changes to Mortgage Insurance Rules
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The
Federal Government announced significant changes to regulations for
new-government backed insured mortgages today. Effective October 17, 2016,
all insured homebuyers will have to qualify at the posted 5-year
qualifying rate. This is a change from previous policy where only
variable rate mortgages and mortgages with terms less than 5-years were
subject to a higher qualifying rate.
With
this move, the Federal Government has chosen to offset a modest risk to
the taxpayer by severely eroding affordability for low equity home
buyers, particularly first time home buyers. The
qualifying rate is updated weekly and available on the Bank of Canada
website. It is currently 4.64 per cent, about 200 basis points higher
than the best bank offered rates.
To qualify for mortgage insurance, a homebuyer's debt servicing ratio must be no higher than:
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Gross Debt Service - 39 per cent of household income, including mortgage payment, taxes and heating costs.
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Total
Debt Service - 44 per cent of household income, including mortgage
payment, taxes, heating costs and all other debt payments
The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later. This measure will not apply to mortgage loans where:
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before October 3, 2016: a mortgage insurance application was received;
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the lender made a legally binding commitment to make the loan;
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the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.
Mortgage
loans for which mortgage insurance applications are received after
October 2, 2016 and before October 17, 2016 are also not affected by the
rule change, provided that the mortgage is funded by March 1, 2017. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.
The Federal Government is
also instituting new eligibility rules for low-ratio (higher than 20%
down payment) mortgages backed by government insurance. As of November 30, 2016, to be eligible for government insurance, new mortgages must meet the following requirements:
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A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
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A maximum amortization length of 25 years;
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A maximum property purchase price below $1,000,000 at the time the loan is approved;
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For
variable-rate loans that allow fluctuations in the amortization period,
loan payments that are recalculated at least once every five years to
conform to the original amortization schedule;
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A minimum credit score of 600 at the time the loan is approved;
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A
maximum Gross Debt Service ratio of 39 per cent and a maximum Total
Debt Service ratio of 44 per cent at the time the loan is approved,
calculated by applying the greater of the mortgage contract rate or the
Bank of Canada conventional five-year fixed posted rate; and,
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A property that will be owner-occupied.
These
new criteria, in particular requiring a maximum purchase price below $1
million, will essentially make the majority of single family homes in
Metro-Vancouver ineligible for government issued insurance for low-ratio
mortgages. |
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How to Benefit from the Hot Sellers Property Market |
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The Housing Market in Victoria has been extremely hot for the better part of the year with Sellers the prime beneficiaries. The current inventory is at historic lows, however, with the new mortgage loan insurance rule changes the hot market has been quelled. There are stay hot pockets with multiple offers being placed and there are also astute buyers who are realizing profits with prudent investment decisions on properties that are overlooked.
If you are planning to sell or buy within the next three months, give me a call and I will ensure you realize the best result possible.
My Best, Arran |
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