Scotia Mortgage Authority is joining RBC as one of the only big banks with flexible qualification rates for conventional mortgages.
For those with 20%+ equity, Scotia will now qualify you (i.e. calculate your debt ratios) using payments based on the following rates:
- For Variable-rate mortgages: 3-year posted
- For 1- & 2-year fixed mortgages: Higher of 3-year posted or contract rate
- For 3- to 10-year fixed mortgages: Contract rate
- For the STEP Line of credit: 3-year posted (if standalone) or the highest above rate (if multiple terms)
Previously, Scotia used the 5-year posted rate to qualify conventional mortgage applicants who chose a variable or 1- to 4-year fixed term.
This policy change creates an advantage for Scotia in that it can now approve conventional clients whose debt ratios are temporarily elevated.
Insured mortgages with less than 20% equity will still be qualified using the benchmark 5-year posted rate, as per federal guidelines.
Rob McLister, CMT
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Last modified: April 26, 2017
…this should be positive for potentials buyers with 20%+ equity and will help keep the housing market afloat.
Rob, in your opinion, why are they loosening the qualification criteria? Is there something the banks know that we don’t?
Is YoY dollar volume of mortgages trending down/saturating?
Thanks
Hi takloo,
Conventional qualification criteria were too restrictive. Common sense applications weren’t being approved despite the client having 20%+ equity, a reasonable total debt ratio of 40%, excellent credit, etc. Adding flexibility generates more volume without unduly increasing risk. Scotia has a strong underwriting department so it’s a sound move from a business standpoint.
Per your last question, mortgage volume growth is expected to moderate this year (to something around 6%, per analysts).
Cheers…
Just a matter of time for all the banks to adopt this policy. TD taking a kickin on this rule, super tight on any TDS, RBC can go 70-80% TDS on conventional deals.