Market Commentary
Government of Canada Continues to Tighten Credit Policies for Banks
November 7, 2012 | Posted by: Francine Tracey
Canadian Credit Tightening Continues:
October 31 was the deadline for Banks to implement new B-20 Guildines set out by OSFI, the regulator for Canadian Banks and Trust. Why? the Bank of Canada and Federal Regulators are rolling out a strategy to keep inflation in check, without creating the double whammy effect of raising interest rates.
Whatever you read here, remember that a well-experienced mortgage broker is qualified to know all of the guidelines of a bank and non-bank lenders (including credit unions), and should you be turned down by a bank for your mortgage request, please contact us right away for help. It's always better to use a well-experienced mortgage broker in the first place, in order to avoid the stress and time wasted going through the wrong lender when your qualifications don't meet specific guidelines.
Here are some of the guidelines set out by OSFI – The office of the Superintendent of Financial Institutions Canada. Chartered Banks will have to apply these guidelines, but other lenders may be able to get around them somewhat, depending on whether the guideline relates to conventional or high ratio financing. Here are the points:
- Amortization plus the client’s age cannot exceed 90 years. Exceptions can be made within reason.
- Benchmark rate must be used for qualification on terms less than 5 years. Variable rate and HELOC included. Benchmark rate is around 5.24% at the moment (posted 5-year rate), which means the client will have to qualify for a much higher rate mortgage than he/she actually applies for.
- The Line of Credit portion of the mortgage (HELOC) cannot exceed 65% of the value of the property
- Tighter debt ratios on uninsured non-prime mortgages, where no guidelines existed in the past.
- Stricter proof of income for self-employed borrowers
- Stricter guidelines for calculating a borrower’s minimum monthly payment on unsecured debt
- Stricter policies for estimating heating cost, which is also used in debt ratio calculations
- The end of cash-back down payment mortgages
- The end of borrowed down payments
The point of all this?
Now more than ever before it is SO important to use a good mortgage broker when applying for a mortgage. But be careful to use a very experienced mortgage broker. Remember there are 9000 licensed mortgage brokers in the province, most working out of their homes doing a deal or so a month or less. This is not enough volume to give them the experience they need to perform well on your mortgage options. A good broker can sift through all of the bank and non-bank rules to give you the best options on your mortgage terms, and qualify you for the mortgage you need.