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NEW
MORTGAGE
RULES
Federal Government Changes Mortgage
Rules
February 16, 2010 -- The federal government has announced changes to the
rules for government-backed insured mortgages (less than 20 percent down
payment) as follows:
* All borrowers will be required to meet the standards for a five-year
fixed rate mortgage even if they choose a mortgage with a lower interest
rate and shorter terms.
* Reduced maximum amount that can be
withdrawn in refinancing a government-backed insured mortgage to 90 per
cent from 95 per cent of the value of the home.
* Require a minimum down payment of 20 per
cent for government-backed mortgage insurance on non-owner occupied
properties purchased for speculation. Borrowers purchasing
owner-occupied residential properties will still be able to access
government-backed mortgage insurance with a 5 per cent down payment.
Additional detail is available here:
http://www.fin.gc.ca/n10/data/10-011_1-eng.asp
QUALIFYING AT A FIVE YEAR RATE
Current interest rates are at record low levels, which has improved the
affordability of housing for Canadians. It is important that Canadians
borrow prudently and are able to manage their debt loads when interest
rates rise.
Lender and mortgage insurers look at two key ratios when assessing the
ability of a borrower to make payments on a mortgage loan:
•Gross Debt Service (GDS) ratio—the ratio of the carrying costs of the
home, including the mortgage payment, taxes and heating costs, to the
borrower's income.
•Total Debt Service (TDS) ratio—the ratio of the carrying costs of the
home and all other debt payments to the borrower's total income.
Currently, the interest rate used to determine the mortgage payment for
these calculations is either the rate fixed for the term of the mortgage
or, in the case of a variable-rate mortgage and mortgages with terms of
less than three years, the greater of the contract rate and the
prevailing three-year fixed rate.
The adjustments to the mortgage framework will require mortgage insurers
to ensure that borrowers qualify for their mortgage amount using the
greater of the contract rate or the interest rate for a five-year fixed
rate mortgage when calculating the GDS and TDS ratios.
This measure is intended to protect Canadians by providing them with
additional flexibility to support mortgage payments at higher interest
rates in the future.
Limit the Maximum Refinancing Amount to 90 per cent of the Loan-to-Value
Ratio
Borrowers seeking financial flexibility can currently refinance their
mortgage and increase the amount they are borrowing on the security of
their home up to a limit of 95 per cent of the value of the property.
This type of refinancing lowers the borrower's equity in their home. The
adjustments today will lower the maximum amount of the mortgage loan in
a refinancing of a government-backed high ratio mortgage loan to 90 per
cent of the value of the property, consistent with the principle that
home ownership is a tool for savings.
Discouraging Speculation by Requiring a Minimum Down Payment of 20 per
cent for non-owner-occupied properties
This measure will require a minimum down payment of 20 per cent for
government-backed mortgage insurance on non-owner-occupied properties
purchased for speculation. Currently, borrowers may purchase a
residential property with a 5 per cent down payment. Today's change will
require a 20 per cent down payment for small (i.e., 1- to 4-unit)
non-owner-occupied residential rental properties. Borrowers purchasing
owner-occupied residential properties which also include some rental
units (e.g., borrowers purchasing a duplex to live in one unit and rent
out the other) will still be able to access government-backed mortgage
insurance with a 5 per cent down payment.
Moving to the New Framework
These adjustments to the mortgage insurance guarantee framework are
intended to come into force on April 19, 2010. Exceptions would be
allowed after April 19 where they are needed to satisfy a binding
purchase and sale, financing, or refinancing agreement entered into
before April 19, 2010.
http://www.fin.gc.ca/n10/data/10-011_1-eng.asp
WILL YOU BE SUBJECT TO MORTGAGE BROKERS FEES?
You can either
use the services of a mortgage broker or you can bypass the broker and go
directly to a lender.
Banks,
mortgage bankers and lenders make loans to consumers. They have the money to
lend. If you go to one of these institutions to get a mortgage, you will be
dealing directly with the money source.
In this case,
a loan agent, who is employed by the lender, takes your mortgage application
and helps process your loan. The lender's underwriters evaluate your
financial documents to determine your credit-worthiness. Lenders either have
their own appraisers, or they hire outside appraisers. But, your mortgage is
processed in-house. The lender usually collects fees at closing to cover the
cost of originating and processing your mortgage.
A mortgage
broker, on the other hand, usually does not have money to lend. A broker
acts as an intermediary between the borrower and the lender. You submit a
loan application and all of your supporting financial documentation to your
broker, rather than directly to a lender. The broker hires a lender-approved
appraiser to appraise the property for you.
Brokers shop
the mortgage market for their customers to find the best interest rate and
terms possible. When the borrower decides on a mortgage product, the broker
assembles the loan package, which consists of the borrower's application,
financial documents and the appraisal, and submits it to the lender for
approval. The lender's underwriters grant final approval.
Mortgage
brokers work on commission. They charge borrowers a fee (called points) for
their loan brokering services. (One point is equal to one percent of the
loan amount.) The broker's fees may be in addition to fees charged by the
lender. Mortgage brokers need to disclose these fees to you.
Discuss and
clarify with the mortgage broker if you will be charged any fees before
signing an agreement with them. Depending on your qualification or
financial situation, you may be subject to broker’s fees. However, if
you are qualified and has good crediting rating, most mortgage brokers will
not charge you fees as they are paid by the lenders directly. Again,
discuss and clarify before you commit with the mortgage broker.
Tip:
Why would you want to pay two loan origination fees when you can pay one
if you go directly to the lender? One reason is that mortgage brokers
can arrange financing that wouldn't otherwise be available to you.
Some lenders
work only with mortgage brokers. They do not accept loan applications
directly from individual borrowers. These lenders are called wholesale
lenders. Some of these loans have the best rates and terms available.
A lender that
deals directly with borrowers is called a retail lender. Some lenders have
both retail and wholesale divisions, which often charge different fees. For
example, if you go directly to Bank "A" for a mortgage, you'll be charged
one point. If you use a mortgage broker who brokers your loan through the
wholesale division of Bank "A", the mortgage broker will charge you one-half
point and Bank "A" will charge one-half point for a total of one point.
Make sure that
you don't use a mortgage broker who charges excessive fees for his or her
services. You shouldn't pay more for a mortgage through a broker than you
would if you went directly to the same lender.
As in any
profession, there are people who do an outstanding job. They value your
repeat business and referrals. Unfortunately, there are a few
less-than-scrupulous people who take unfair advantage of any situation. So
you should ask for referrals from acquaintances you trust. And check for
rates and fees with competitors before choosing a broker.
The Closing:
A big benefit in using a broker is that he or she can quickly move you
from one lender to another if for some reason you have difficulty
qualifying. Also a broker may have access to a larger array of mortgage
products than might be available from an individual lender.
If you need assistance in arranging your
pre-approval or mortgage financing, please forward your request.
Request for Pre-approval Form
*All information are strictly confidential and are not shared
with any other party or mailing list.
Terms Used in Mortgages:
Conventional Mortgage - a mortgage where the down payment is
equal to 25% or more of the property's value. A conventional
mortgage does not normally require mortgage loan insurance.
High-Ratio Mortgage - a mortgage where the borrower is
contributing less than 25% of the value of the property as the down
payment. High-ratio mortgagesmust be insured through Canada Mortgage
and Housing Corporation (CMHC) or GE Mortgage Insurance Canada (GE),
the two mortgage insurance companies in Canada.
Open
Mortgage - an open mortgage allows the mortgagor to prepay all
or part of the principal amount at any time with or without notice
or bonus. Open mortgages usually have short terms of six months to
one year. Interest rates on open mortgages are higher than on closed
mortgages with similar terms.
Closed Mortgage - Closed
mortgages are mortgages that do not allow any prepayment or early
repayment except on the sale of the property, in which case
penalties are required.
Fixed Rate Mortgage - the
interest rate is derermined and locked in for the term of the
mortgage. Lenders often offer different prepayment options allowing
for quicker repayment of the mortgage and for partial or full
repayment of the mortgage.
Variable Rate Mortgage (VRM) /
Adjustable Rate Mortgage (ARM) - this type of loan differs from
a fixed payment mortgage in that the interest rate charged on the
loan may be changed during the term of the mortgage. Generally,
these loans are initially set up like a standard loan, based on the
current interest rate. | |
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HOMELIFE BAYVIEW REALTY
INC.
Real Estate Brokerage
Independently
Owned & Operated
505 Highway 7 East Suite 201,
Thornhill, Ontario L3T 7T1
Office
(905) 889-2200
Toronto Line
(416) 324-2822
Fax
(905)
889-3322
Email:
info@sellhomestoronto.com
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