TOUGHER RULES SET FOR MORTGAGES IN 2018: WHO LOSES?
Should Provinces Be Given a “Stress Test” Themselves?
The new mortgage regulations have been released that will take effect as of Jan. 1, 2018 and impact new homebuyers and homeowners considering renewing their existing mortgages. All borrowers, including those who have 20% or more and do not require mortgage insurance, will now need to qualify for a mortgage at the posted rate which can be much higher (as high as double the rate they will end up securing).
One of the interesting things to emerge is the way in which banking is federally regulated, and yet provincially regulated credit unions may not require home buyers to pass this “stress test”. The Fraser Institute published a report stating that these new rules are in response to the 2008 recession, and may result in higher mortgage rates and lower the ability for a home buyer to access a mortgage.
Homeowners who are renewing their mortgage with the same bank as their existing mortgage will not need this qualification to obtain a renewal. However, it is still not clear if a home owner who is wanting to switch lenders when their mortgage comes due for renewal will need to pass this “stress test”.
These changes come at a time following an August report by TransUnion advising that mortgage amounts have increased (due to higher housing prices) but that the defaulting on mortgages has actually FALLEN over the past year. CMHC, who insures higher-risk mortgages (or those with less than 20% down), posted a profit of $1.5 BILLION in 2015, with an arrears rate of only .34%. It is important to point out that this means that .34% of higher-risk mortgage holders are no defaulting on their mortgage, but are simply behind in their payments. It seems difficult to understand why these rules are being implemented when there is no indication that we are seeing a huge foreclosure projection.
The Fraser Institute study perceives the additional household debt that Canadians have been taking on to be reasonable, given the low interest rates. Livio Di Matteo, author of the Fraser Institute report and professor of economics at Lakehead University, states “When looking at debt levels it’s important to consider the degree to which Canadians are also using it to increase their net worth.” Interestingly enough, Di Matteo points the finger straight at the provinces themselves, noting that governments have been increasing their spending, while the net worth of provinces has decreased. Perhaps, provincial and federal governments should be given a “stress test” themselves to ensure that they are not overspending our country into foreclosure.
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