New Mortgage Rules – Separating the fact from the fiction

I was speaking to one of our lenders last week and suggested that he send me a summary of all the changes happening in the Canadian residential mortgage market. He said he would once they figured it all out. I found that amusing given the Minister’s press conference was back on February 16, 2010. It has taken two months to sort it out, but here is a brief summary of the changes. If you would like to call me to discuss in more detail I would be happy to do so.

• Refinances: The maximum LTV has been reduced from 95% to 90%
• Non-owner occupied rentals: The maximum LTV has been reduced from 95% to 80%. Lenders may require these mortgages be insured if over 65% LTV
• Qualification rate: For loans with a greater LTV than 80%, the qualifying interest rates used to calculate Gross Debt Service ratio (GDS) and Total Debt Service ratio (TDS) are:

–       On a fixed term of 5 years or more: The ‘contract rate’ (the rate offered in the contract)

–       On a fixed term of less than 5 years and on all variable rates: The greater of the contract rate, or the benchmark rate (5-year conventional rate, published by the Bank of Canada)

• Rental income (subject property): The new formula for calculating TDS determines the borrower’s gross annual income based on 50% of gross rental income from the subject property instead of the previous 80% of gross rental income from all rental properties
• Rental income (other properties): If the borrower has other non-owner occupied, rental-income generating residential properties, then:

–       Net rental income can be included in the borrower’s income; and,

–       PITH (principle, interest, taxes, and heating) for these properties can be excluded from the debt service costs.

• Business for self: Maximum of two units where one is owner occupied. 90% LTV on purchases, 85% LTV on refinances. “Stated income” is accepted, but commission income is ineligible.

April 27, 2010 is the annual LSTAR Annual Trade Show at the Best Western Lamplighter Inn in London, Ontario. We hope you all drop by our booth and enter our contest. If you mention your read this article you will receive a second chance to win. It is always nice when life gives you a “do over”, and you thought this only happened on the golf course.