Today is day one of the government’s new mortgage rules.

Here’s a quick rundown of the key points…

QUALIFICATION RATE

The biggest rule change affects borrowers who put down less than 20% and want a variable or 1- to 4-year fixed term.

Yesterday, you might have qualified for a high-ratio $250,000 variable-rate mortgage with a 3.84% qualifying rate (give or take).

Today, lenders will demand you qualify with a 5.85% rate (soon to be 6.10% on Wednesday).

That means your income needs to be roughly 25% higher today than it did yesterday to be approved for the same variable or 1- to 4-year fixed mortgage!

We’ve started posting the industry-wide qualifying rate in the left column of the site for convenience.  It will generally be updated every Monday, but consult the official source when you need to be sure.

From what we can tell, most of the big banks are applying the new posted qualifying rate to all variable and 1- to 4-year fixed terms, regardless of loan-to-value (LTV)!  Many smaller lenders are only using it on high-ratio mortgages. That’s a distinct advantage for them, as we mentioned Friday.

By the way, if you’re interested in a 5- to 10-year mortgage, nothing changes. The qualification rate will still be based on the rate you’re quoted.

REFINANCES

Starting today, insured refinances will be limited to 90% loan-to-value.

2ND HOMES

Second homes now qualify for high-ratio insured financing if, and only if, they have no more than one unit.

RENTAL FINANCING

People buying rental properties now have to put down 20% (instead of 5% last week) to get insured financing.

You can put down less than 20%, but you’ll generally need to use an uninsured lender, which means higher interest rates.

In terms of qualifying, CMHC has released a clarification on how they’ll treat rental income. It comes as welcome news to property investors because of the exclusions of redundant expenses in the debt service calculations.

In short:

• When a subject property or owner-occupied property generates rent:
  • 50% of gross rent is added to the borrower’s income
  • Property taxes and heat are excluded from Total Debt Service (TDS) calculations.
• For non-owner occupied rental properties:
  • 100% of net rental income is added to the borrower’s gross income
  • The mortgage payment, property taxes, and heat are excluded from TDS calculations.

Net rental income:

• A 2-year average of rents is required to establish net rental income (we’re checking on what exceptions may be permitted)
• Net rental income is proven via the borrower’s T776 Statement of Real Estate Rentals OR lenders can use their own guidelines to validate rental income.
• Net rental income can be grossed up 15% if the borrower takes deductions for depreciation or amortization, or rental-related self-employed income.

Consult a mortgage professional to confirm how these guidelines apply in your situation.

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* Assumes a 3.84% three-year qualifying rate as of April 18, 5% down, a 35-year amortization, 1% of property value for property taxes, $85 a month for heat, insurance premiums included, no condo fees, no other monthly debt obligations, and a 680 credit score.