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Monday, October 17th, 2016

New Rules or Old Rules for Mortgages – From your Friendly Vancouver Mortgage Broker

New Rules or Old Rules for Mortgages – From your Friendly Vancouver Mortgage Broker

DNew Rules or Old Rules for Mortgages uring the previous four and a half years, the feds have introduced over two dozen changes in both new policies and regs that have had an impact on Vancouver home mortgages. With good intentions in mind, this Vancouver mortgage broker understands their attempt to stabilize the housing market in not just Vancouver but across the country.

This has resulted in a lot of chatter, both pro and con about the overall effects of these regs. Whatever your view on these new rules, the future effects of how these changes will impact the housing market is yet to be written. Only the future will tell whether the effects will be positive or negative on the economy.

Yet, there are many out there who have firm opinions about what they believe will happen down the road. Some of these seers have taking a more casual approach as they consider that many of these new rules are just old rules being re-visited and aren’t too concerned about their impact.

There is some partial truth in what they say particularly as it applies to the size of the down payment, the length of the amortization period and the changes made to the debt service ratio.

However, you must keep in mind that some of these recent mortgage rule changes are actually new or haven’t been used since well over 10 years ago. But many of the new mortgage rules actually are new, or they haven’t been applied for over a decade. Here are some of the newer examples:

  • Terms which are less than five years now have compulsory qualification rates. For example, a person who wants a 4-year fixed mortgage must prove they can carry an interest rate of 5.14%. Alternatively, if these choose to go with a 5 year term then they are only obligated to carry a rate of 2.89%.
  • Another new rule affects self-employed borrowers who now have to undergo more stringent documentation requirements. There are also more restrictions that have been placed on securitization issues.
  • Refinancing LTV (Loan-to Value) which means the amount of the mortgage loan as compared to the property’s value was changed from 90%, which had been introduced in 2001, and was lowered down to 80%.
  • Using the amount of rental income when applying for a mortgage has also become stricter. Additionally, there have been more attachments made to credit scores.

Some of the regulations actually make good sense and can even be seen as essential, but the point is that these rules can definitely be classed as new while some others can be said to be old rules which have been upgraded to reflect the current market. So, it would be incorrect to say that these new restrictions or rules are just a throwback to the old days.

Let’s not forget that back in the 1970’s that new home buyers could get a 35 year amortization with a greater use of second mortgages to back a first mortgage, and that there was a negligible price ceiling on a low down payment mortgage.

Nonetheless, the new rules discussed above have been merged with debt-ratio, amortization down payment, rental rules and HELOC regs to put some brakes on the housing market. This Vancouver mortgage broker can only hope that the Feds will see how things play out before adding even more rules.

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