The mortgage market in the last couple months has been in a constant state of flux with policy changes making headlines nearly every week. It can seem daunting trying to stay on top of the constant stream of information to feel prepared for financing your next purchase.

In this blog post I have outlined the key points that will influence you most when qualifying for your mortgage.

Have less than a 20% down-payment?

This means mortgage default insurance is required on your purchase. CMHC, one of Canada’s 3 mortgage insurers, came out with new policies this week that apply to down-payment sources, credit scores and debt service ratios.

• Your down-payment can no longer come from an interest accruing source (cannot borrow from a line of credit, credit card, etc.)
• The minimum credit score for at least one person on the mortgage has to be 680 in contrast to the previous score of 600.
• The debt service ratios – GDS/TDS – which are percentages of your income in contrast to the amount of debt you carry, are going from 39/44 to 35/42; which means you will qualify for less.
• The other two insurers, Canada Guaranty and Genworth Canada, won’t adopt the same policies, at least not for now. The CMHC policy comes into effect July 1st, 2020.

Have you deferred your mortgage?

When the major Canadian lenders introduced a mortgage deferral option due to COVID-19, over 670,000 mortgage borrowers took advantage of the special payment arrangement within the first month alone. About 14% of the largest Canadian lenders’ loan portfolios were impacted by deferrals.

• Mortgage deferrals will not damage your external credit score but will damage your internal score; which your bank uses to deem your credit-worthiness within their institution.
• Deferrals will negatively impact your mortgage renewal rates (around 2% higher)
• Many of our lending partners such as Scotia Bank, will not provide financing to a client with an active deferral.
• In order to proceed, we would need to show mortgage payments have resumed.
• Overall you should not defer your mortgage unless you absolutely have to and should resume payments if you want to pursue financing options.

Collecting CERB payments?

• If you are qualifying for a mortgage using your primary source of income, the lender has deemed it a deal killing red flag if they notice CERB deposits.
• To apply for CERB deposits is to state to the Government you are no longer earning your primary income source (you should be making $1000 or less per month)
• CERB deposits do not count as income when qualifying for a mortgage

How you should proceed in the current lending environment:

• Expect longer wait times for financing due to increased activity with most lenders.
• Plan ahead, get organized and get your preposition with a mortgage broker before you make an offer.
• Prepare for possible denied refinances or financing on new properties because you took advantage of a mortgage deferral option. Your mortgage broker can help you navigate this.
• Understand the price of deferring your mortgage – likely thousands of dollars in interest.
• Understand the penalties of breaking your mortgage before going with one of the big banks to avoid a $30,000 fee, like this woman 
• Work with educated professionals as being informed will ensure you’re always one step ahead.
  
  

The current state of the world has caused financial turmoil for many, that is why I am offering free mortgage & financial evaluations. Reach me anytime: marina@vinegroup.ca