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The New Regulations Countdown

Regulations-for-Mortgages-TighteningIn less than seven weeks, 35-year amortizations will disappear on high-ratio insured mortgages. At the same time, the limit on insured refinances will drop to 85% loan-to-value (from 90%).¹

Borrowers have no later than Thursday, March 17 to arrange a signed lender approval under today’s mortgage insurance guidelines.

This affects people that might want:

  • A 35-year amortization to boost their monthly cash flow or augment their purchasing power; or…
  • A 90% LTV refinance to consolidate high-interest debt, pay for renovations or education, buy investments or fund a rental property down payment

The coming deadline will cause thousands of people to hasten their mortgage plans. Thus far, we’ve heard multiple lenders reporting above-normal mortgage volumes. These elevated volumes will likely continue for the next seven weeks, culminating in an especially busy stretch from March 14-17.

For illustration purposes, assume you want to apply for a $300,000 insured mortgage. Here’s a comparison of lending guidelines before and after March 18.

  Before March 18 After March 18
Maximum high-ratio amortization¹ 35 years 30 years
Maximum LTV on a Refinance¹ 90% 85%
Minimum qualifying income² $46,600
(with 35yr
(with 30yr
Monthly payment at 3.89% interest³ $1,303
(with 35yr
(with 30yr amz)
Maximum insured mortgage refinance $270,000 $255,000

Quick Tips:

  • A handful of lenders are covering legal/registration costs on refinances that close in the next month or two. Ask your mortgage professional for details.
  • We’re hearing reports of CMHC scrutinizing 90% LTV refinance applicants more than usual, especially if the applicant has higher-than-normal debt utilization and/or minimum net worth

Stats of Note:

  • Roughly 30% of new mortgages last year had 35-year amortizations and first-time homebuyers used them the most.
  • TD estimates that the amortization reduction will impact 20,000 home sales (TD projects 2011 home sales at 420,000 units)
  • Dropping the amortization from 35 to 30 years cuts peoples’ maximum possible purchase price by 6-7%.
  • Roughly 10% or less of mortgagors who refinance get a mortgage over 85% of their home’s value.

¹  Certain uninsured mortgages will still be offered with 35-year amortizations and 90% LTV refinance limits.

²  Assumes a qualified borrower with 5% down, 680+ credit score, 44% TDS, a 3.89% interest rate, 1% property taxes, no condo fees or non-mortgage debt, and $100 monthly heat

³  3.89% is an average 5-year fixed mortgage rate today.

Rob McLister, CMT