Unimor Capital Corporation

Tag: stress test

  • Unlocking Mortgage Mysteries: 5 Things You May Not Know

    Unlocking Mortgage Mysteries: 5 Things You May Not Know

    Securing a mortgage is a significant milestone for many Canadians, whether it’s for purchasing a dream home, investing in real estate, or refinancing an existing property. While mortgages are familiar territory for most, there are several lesser-known aspects that can impact your financial decisions. In this article, we’ll uncover five key insights that might surprise you about mortgages.

    1. Mortgage Penalties: When obtaining a mortgage, borrowers typically focus on the interest rate, term, and monthly payments. However, it’s crucial to be aware of potential mortgage penalties. If you break or alter the terms of your mortgage agreement prematurely, lenders may charge penalties. These penalties can be substantial and vary depending on the mortgage type and the lender’s specific terms. It’s essential to carefully read and understand the fine print before committing to a mortgage to avoid any unpleasant surprises down the road.

    2. Mortgage Prepayment Options: Most Canadians are aware of the importance of paying down their mortgage faster to save on interest payments. However, not everyone realizes the different prepayment options available. Many mortgage products in Canada offer prepayment privileges that allow borrowers to make additional lump-sum payments or increase their regular payments. Taking advantage of these prepayment options can help you save thousands of dollars in interest over the life of your mortgage.

    3. Mortgage Portability: Life is unpredictable, and sometimes circumstances may require you to move before your mortgage term expires. In such situations, mortgage portability can be a valuable feature. Porting your mortgage allows you to transfer your existing mortgage to a new property without incurring penalties. While not all mortgages are portable, understanding this option can provide you with flexibility and potentially save you money when you decide to relocate.

    4. Mortgage Stress Test: To ensure financial stability and protect borrowers, the Canadian Government implemented a mortgage stress test in 2018. This test assesses a borrower’s ability to make mortgage payments at a higher interest rate than the one they’re applying for. It ensures that borrowers can afford their mortgage even if interest rates rise in the future. While the stress test may limit your borrowing capacity, it promotes responsible lending practices and safeguards against excessive debt.

    5. Mortgage Brokers:     When searching for a mortgage, many Canadians turn to their local bank as their primary source. However, working with a Mortgage Broker can offer several advantages. Mortgage Brokers are licensed professionals who have access to a wide range of lenders, including major banks, credit unions, and alternative lenders. They can help you navigate the complex mortgage market, compare various options, negotiate on your behalf, and potentially secure more favorable terms.

    Understanding the nuances of mortgages is essential for making informed decisions and ensuring a smooth homebuying experience. By delving deeper into the lesser-known aspects of the mortgage world, you can better navigate the complexities and potentially save money in the process. From being aware of potential penalties and prepayment options to understanding mortgage portability, stress tests, and the benefits of working with a Mortgage Broker, these insights will empower you to make sound financial choices on your mortgage journey.

  • The New 2018 Mortgage Rules

    The New 2018 Mortgage Rules

    What are the 3 new 2018 mortgage rules?

    It’s going to get a lot harder for some home buyers to get a mortgage in 2018. That’s because the Office of the Superintendent of Financial Institutions (OSFI, Canada’s banking regulator) introduced three new rules on mortgage lending that takes effect in 2018 and the new rules will hit first-time home buyers and those thinking of refinancing their homes the hardest.

    1. Stress Test
      Starting on January 1, 2018, the OSFI has set a new minimum qualifying rate, or ‘stress test’ for all prospective home buyers, even those with a down payment of over 20%. Before the new, tougher rule, only buyers that had a down payment of less than 20% had to make sure they could pass a stress test. Regardless of how much money you save for a down payment, if you don’t pass the new stress test, the bank won’t give you a mortgage.Under the new mortgage stress test, potential home buyers need to qualify for a mortgage at a rate that is the greater of two indicators: either 2% higher than the mortgage rate they qualified for, or the Bank of Canada’s 5 year benchmark rate, which is currently at 5.14%. Before the new stress test, home buyers or owners qualified at the rate offered by the lender. The actual mortgage payment will still be paid at the negotiated rate, but a higher calculation is used for qualifying purposes.
    2. Enhanced Loan-To-Value Measurements
      Traditional mortgage lenders (Canada’s big banks) need to ensure the Loan-To-Value (LTV) ratio remains “dynamic.” That means it needs to be adjusted to local market conditions. The OSFI insists that lenders (excluding private lenders) have internal risk management protocols in higher priced markets, like Toronto and Vancouver. A LTV ratio is a number that describes the size of a loan compared to the value of the property.Canada’s big banks use the LTV ratio to determine how risky a loan is; the higher the LTV ratio the greater the risk. For example, if property values decrease following a housing bubble, the LTV ratio could actually rise and be higher than the total value of the property. In which case, it’s quite possible that you have negative equity in the house.
    3. Restrictions Placed on Certain Arrangements to Avoid LTV Limits
      Mortgage lenders (again, this does not include private lenders) are not allowed to arrange a mortgage or other financial product with another lender that gets around the maximum LTV ratio or other limits placed on residential mortgages. If you apply for a mortgage with a LTV ratio of 80% and the lender can only approve you for 60%, in the past, the lender could partner with a second lender for the additional 20%, bundle it together to get a complete LTV loan of 80%. Traditional lenders cannot do this anymore.

    What does this mean for homebuyers and sellers?

    The three new mortgage rules that kick in as of January 1, 2018 will hurt the fastest growing segment of Canada’s mortgage market—uninsured mortgages. That’s one out of every six prospective homebuyers in the country.

    The strict stress test, which is meant to ensure borrowers can afford to pay their mortgage at a higher rate, is now being applied to all home buyers, even those with a down payment of 20% or more. Once the tests are in place, it is estimated that it could lower a family’s purchasing power by up to 21%.

    Economists say the stricter mortgage rules will also negatively impact softening housing markets across the country. It is expected the tougher mortgage rules, once fully implemented, will depress housing demand by up to 10%.

    If you’re a homebuyer and want to refinance a mortgage, the new mortgage lending rules will be a lot more difficult to negotiate.

    Should you be worried?

    If you’re a first-time home buyer, the stricter mortgage lending rules mean you might need to rent for a little longer or wait until your income increases before you can buy a home. Because the purchasing power does not go as far as it once did, first-time home buyers might need to consider something besides a detached house—a townhouse house or a condo. Or, first-time homebuyers may need to get a co-signer to qualify under the strict new rules.

    There are other options though. Keep in mind; the stricter mortgage lending rules only apply to those homebuyers looking to secure a mortgage with one of Canada’s federally regulated mortgage lenders, which does not apply to private mortgage lenders.