Changes in mortgage rules in Canada have been made effective since January 2018. These will affect every Canadian who plans on buying a new home for this year and the years to come up until new rules will be implemented in the future. While there are many changes that have been implemented, a few of the major ones that you should take note of when going for a mortgage are the following:
Loan to value ratio must be improved by lenders
This rule applies to mortgage lenders other than credit unions and private mortgage lenders. Alongside having a more improved loan to value ratio, these lenders must also be aware of the critical risks they will be exposed to when lending. It is important for them to learn how to respond to these risks in an appropriate manner. As soon-to-be Canadian homeowners, you must take note that these lenders have been ordered to have internal risk management protocols to help them deal with these risks and those of highly priced markets that exist in the Canadian market.
Restrictions are given to transactions that appear to avoid limits on the loan to value ratio
Mortgage lenders except those of credit unions and private lenders are not allowed by law to make arrangements with other lenders for transactions that appear to have been designed in order to avoid the limitations of the loan to value ratio. For instance, you make an application through a lender and that lender can only avail up to 70% of the 80% LTV. That lender will look for a third-party lender that can give the remaining 10% LTV. This is what is prohibited by the new mortgage rules for 2018.
Uninsured mortgages will use a new minimum rate
If your mortgage is uninsured then you will need to qualify for a mortgage that has a new minimum rate. There is a benchmark rate given by the Bank of Canada for five years. The rate to qualify may also be based on the contractual mortgage rate of the lender with an additional rate of 2%. In the past, consumers are qualified with the rates offered by that of the lender. Don’t worry because you will still pay according to your lender’s rate. It is just that the qualification process which will feature a higher rate of calculation.
Rules affect those applying for renewal or refinancing
Canadian homeowners looking to refinance or renew their existing mortgages will have to take note that they are affected by these new sets of rules too. While the laws become stricter for them, it has to be noted that the new rules will apply only to those whose mortgages have been granted by financial institutions that are regulated by the federal system. You have to undergo the stress test as when you applied for your mortgage the first time. This is to assure your lenders that you are still capable of paying the mortgage. These rules are not as strict when it comes to your private lenders.
In case you are looking for second mortgage in Montreal, it will be good to know how your privileges are affected by these new rules. Ask questions and get educated about these laws!