“Small” Oversight

The Finance Department’s new qualification rate policy is generating no shortage of confusion.

We talked to some high level folks at the insurers and not even they know what interest rate will be used to qualify borrowers come April 19.

It could be the 5-year posted rate or the 5-year discount rate.  One source told us it might even be an offset from prime (like prime + 2%).

If it’s the 5-year discount rate (about 3.89% today) then you’d need to make at least $52,400 to qualify for a $250,000 mortgage.*

If it’s the 5-year posted rate (5.39% today) then you’d need income of $58,600 to qualify for that same mortgage…$6,200 more than if the discounted 5-year rate was used!

  *  Assumes a 35 year amortization, $500 a month in non-housing debt, 1% for property tax, $125 a month for heat, and a 680+ credit score.

With a rule change this big, wouldn’t (shouldn’t) the government have realized that lenders use different 5-year fixed rates? 

The RBCs, BMOs, and TDs of the world have posted rates. But, the INGs, Street Capitals, and First Nationals of the world, don’t.

We hate to say it, but these rules seem to have been rushed out with insufficient industry consultation--especially with respect to the game-changing new rental policies (which we’ll talk more about shortly).

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Sidebar:  We’ll update new Finance Department developments as we hear about them in CMT’s Twitter mortgage news feed.