I’m sure you are all likely as dizzy as I am with all of the changes happening, the recent mortgage changes have caused quite a stir. The media has focused primarily on the new home buyer and how the changes will affect their ability to qualify for a mortgage, but what about the second wave of changes to the mortgage rules coming in on November 30th? Do the changes affect investors? And if so, how?
Buying Power and Options
As of November 30th back end insured mortgages for non owner occupied properties will be limited to properties that contain 2 – 4 doors. Properties with only one door will not be considered for insured rental programs.
Currently monoline* lenders back end insure the mortgages they write and sell them to various investment companies. By selling off their mortgages as investments they receive more cash to lend. Rinse and Repeat. As of November 30th all insured mortgages will also have to pass the “Stress Test” and qualify at 4.64% at a 25 yr amortization.
So what? Who cares? There’s always a bank right? They don’t back insure their mortgages… Or do they?
The bank lenders are just fine for you… right? As of right now 2 BANKS have changed their policies when it comes to low ratio mortgages and stated that they will have to pass the stress test going forward. OUCH! That will hurt your debt servicing ratios and inhibit your ability to continue to qualify. What will the rest of the banks do? Will they follow suit? We don’t know yet… But by the time we find out, it may be too late for you to make any changes or purchases you have been thinking about.
Whether you have been investing for a while, or are just starting out and haven’t been sure about purchasing a rental property because you are waiting for the “bottom of the market”, you may want to get off that fence before your plans are derailed for you.
Refinances are being lumped in with the changes coming on November 30th. Of course, most of you use refinancing your personal home or current rental portfolio in order to gain access to the equity in order to keep investing. As of Novemer 30th, refinances will no longer be back end insured.
Were you thinking of refinancing in the near future? Start looking at your options now before your options have been chosen for you.
Most investors who are involved in Real Estate education programs or clubs are taught about a re-advanceable mortgage. Why would a monoline be your best option for this product? In my personal opinion there are a couple of reasons.
- There are monolines that offer a great re-advanceable product with an upfront interest rate on the HELOC portion at .50% less than the banks.
- A re-advanceable mortgage and HELOCs are registered on title as a collateral charge. The overall affect to you is that should you have other credit products with that lending institution and for some reason you were to default on any of them…such as a credit card or a mortgage on an investment property, you are putting your personal home up for grabs. The collateral charge covers all debts you have with that institution. With a re-advanceable from a monoline you don’t have that issue….. they only loan on mortgages, and you can limit your interaction with that lender to just one mortgage.
Bottom line –
We still don’t know for sure what the other banks will do regarding low ratio mortgages, will they follow the other two and start requiring all low ratio mortgages to pass the stress test for financing? If so, that will affect your ability to continue to qualify as it changes your debt ratios.
It has always been recommended that you pre-plan several steps ahead when dealing with investment properties, having a plan has never been more crucial to your success as a Real Estate Investor.
It’s time to get off the fence and have an investor focused mortgage broker look at your current situation and your future plan before you feel the effects of November 30th.
Silver Lining – As Investors you are going to be in a position to provide quality rentals to those who are unable to purchase the home of their choice! Qualified renters… who doesn’t love those?
*Monoline Lender refers to a lender who does not set up accounts and take deposits like a bank and only focuses on one area of lending – mortgages.
Brought to you by Leticia Casanova of Dominion Lending Centers – Leticia can be reached at LCasanova@dominionlending.ca