Mortgage Rule Changes have made Mortgage Brokers even more invaluable
In October of 2016, the entire Country was surprised by reports of considerable changes to mortgage rules announced by the Canadian Government. The Department of Finance Canada announced new mortgage rules that have since had a tempering effect on the market. In late December, the Office of the Superintendent of Financial Institutions (OSFI), in follow up to the new rule changes, mandated a new capital framework for our three mortgage insurers.
In the span of three months – in an obvious effort to curb the extremely hot markets of Toronto and Vancouver, the government changed the rules of lending and borrowing across the entire country -and without consultation from any industry professionals to gauge the potential impact on the rest of the country. This has further complicated the residential mortgage world for all Canadian homeowners and want-to-be homeowners.
Mortgage Rules Have Made it More Difficult for Borrowers
Borrowers are required to have their borrowing capacity stress-tested, not against the lenders’ current mortgage rate offerings, but against a new qualifying rate, currently posted at 4.64% for insured high-ratio mortgages. A rate that is almost 2% higher than what they are actually paying. This has reduced every homebuyer’s buying power. Some homebuyers who may once qualified for a mortgage will now not qualify at all.
It has become more Expensive Across the Board
In addition, traditional lender funding mechanisms have changed, and low-ratio portfolio insurance premiums have increased. These changes have driven up interest rates for Canadian mortgage borrowers, some more than others. Since October, mortgage rates have gone up around 30-60 basis points with many lenders. This has impacted the borrower in two-fold – their purchasing power has gone down by an average of about 20% due to the “stress-test” while interest rates have gone up also, further reducing affordability.
You Need a Mortgage Broker More Than Ever
For all consumers, the recent changes represent a major step back, not only due to the fact that on average they can now afford less, but the additional layers of complexity of new and far more complex mortgage pricing structures, product surcharges, risk and Loan to Value (LTV)-based surcharges and new qualification methodology, it is doubtful that web-based direct-to-consumer or self-serve residential mortgage sites will be growing any time soon.
All of these changes mean that they need to find themselves a good Mortgage Broker to work with when looking for any sort of mortgage financing. Because the more complicated the mortgage market gets, the greater the need for home buyers and homeowners alike to lean on the expert advice of a professional mortgage expert.
Full-service mortgage brokers – the people who live mortgages every day as a sole source of income and are on top of the latest regulatory changes — can help homeowners navigate these increasingly complex waters. They understand the ins and outs of all the regulations; the strengths and weaknesses of the different financial institutions, from bank to non-bank lenders, trust companies to credit unions; and they look for a mortgage to suit the home buyer, a benefit that you simply will not get from anywhere else, especially your bank. Mortgage brokers don’t work for lenders; they work for the home buyer. So their advice is informed, unbiased and honest.
That’s why mortgage brokers have been getting a bigger share of the action over the last few years. As revealed in the 2016 CMHC Mortgage Consumer survey, “mortgage broker share of the market is trending upwards for renewers and refinancers, increasing from 21% in 2015 to 26% in 2016 for renewers, and from 33% in 2015 to 38% in 2016 for refinancers…. Market share is even higher among first-time buyers at 51%.”
Home buyers and homeowners can trust a pro to explain what the new mortgage regulations mean to them, and what their options are so that they can make the most informed decision.
A home is typically the biggest purchase people will make in their life. To buy a home without the insight of a professional, full-time mortgage broker just doesn’t add up.
There was a time when car owners with some mechanical aptitude could perform general maintenance on their cars and only needed to visit their mechanic as a last resort. Then car engines became more computerized, and car owners no longer had the specialized tools and skills. Mechanics became more sophisticated and knowledgeable, and demand for their skills increased.
Today, the inner-workings of a mortgage in Canada is much like the inner-workings of a car engine. Better off in the hands of an expert.
This blog post was inspired by an article originally published by Dan Putnam, AMP, Senior Vice President, Business Development, Residential Mortgages, CMLS Financial Ltd. – one of our valued lender partners- Thank you Dan for your insight.