Yesterday brought an avalanche of inquiries about the new mortgage rules.

Here’s a little Q&A on topics that might be top of mind at the moment.

We’ll touch on individual borrower issues first. Then we’ll follow up with a 2nd story on industry implications.

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Q:  When must I apply in order to secure a 35-year amortization on a high-ratio mortgage or a 90% loan-to-value refinance?

A:  To be safe, ensure that you are approved by Thursday March 17.

Be careful about making changes to your application after March 17 if those changes would require that your application be reapproved. Otherwise your mortgage could be underwritten under the new rules and may not close.

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Q:  How are pre-approvals affected?

A:  The act of getting a pre-approval before March 17 does not guarantee you’ll be approved for a 35-year amortization. That’s because insured pre-approvals that turn live after March 17 will be subject to the new amortization limit of 30 years.

“Turn live” refers to the time when a borrower has signed a binding purchase agreement and submitted a full bona fide mortgage application with a specific closing date.

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Q:  How will the elimination of 35-year amortizations on high-ratio insured mortgages affect monthly payments?

A:  The payment on a 30-year amortization is $34.72 higher for every $100,000 of mortgage, compared to a 35-year amortization. (This assumes a 4% sample interest rate and standard underwriting criteria.)

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Q:  How many people will be affected by the reduction to 85% loan-to-value on refinances?

A:  Lowering the refinance LTV threshold to 85% likely impacts less than a tenth of all refinances (Src: TD).

For those affected, they’ll now be able to refinance an average of $17,228 less debt based on the typical Canadian home value. The average Canadian has $25,163 in non-mortgage debt (Src: TransUnion via WSJ).

In addition, we’re waiting to confirm how this change affects mortgagors with collateral charges over 85% LTV. In those cases, switching lenders at renewal requires a refinance. Thus far, the Finance Department hasn’t stated that it will allow exceptions to the 85% LTV refinance limit. This is a key point so we’re awaiting official confirmation from the Finance Department. We’ll report back shortly once we’re certain.

The 85% refi limit also handicaps peoples’ ability to refinance in the event of higher rates or falling home prices. If you’re a mortgage professional, ensure that you counsel clients about this possibility if they are buying a house with less than 15% down. If home prices tumble, some people won’t be able to refi to lower their payments.

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Q:  Can I still get 40-year amortizations?

A:  Lenders not bound by insurance restrictions can theoretically offer any amortization they want, regardless of a borrower’s equity. That said, not many actually go to 40 years.

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Q:  Will 35- and 40-year amortizations still be available on conventional insured mortgages?

A:  35-year amortizations will still be available on conventional insured mortgages. However, we’ve heard that 40-year amortizations on conventional insured mortgages might be outlawed (but we haven’t confirmed it). Currently, very few lenders still allow 40-year amortizations on prime conventional mortgages. Merix Financial is one example.

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Q:  What can people do if they want to refinance up to 90% after March 17?

A:  A small number of niche lenders offer uninsured refinances to 90% LTV. As time goes on, expect additional specialty lenders to hit the market with second mortgages up to 90%. (There is good opportunity here for selective lenders who can manage default risk.) In all cases, the rates will be notably higher than insured mortgage rates (often 3-6 percentage points higher, or more).

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Q:  I have a HELOC now. Will it be affected by the new HELOC rules?

A:  Lines of credit put in place before April 18 will generally be unaffected by the HELOC rule changes. Insured HELOCs will stay insured until they are discharged.

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Q:  Is 100% financing still available?

A:  Essentially yes. The government’s rule changes did not eliminate one’s ability to borrow a down payment. That means borrowers can still get their 5% down payment from lenders who offer cash-back down payment programs. It is “interesting” that the government saw more risk in HELOCs (which have rigid qualifications and are backed by 20%+ equity) than in cash-back down payment products, which are effectively 100% LTV on closing day.

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Exceptions to the above may exist so always consult a mortgage professional about your specific case.

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Rob McLister, CMT