Scheduling conflicts didn’t allow me to pull in broker-to-the-stars, Joe Sammut, for a video today as promised.
But I found the next best thing – his son, Benjamin Sammut, who is almost as good-looking, and with a slightly better beard
Thanks to TRB readers and commenters for a host of solid questions, and great debate points from Friday’s blog that we can explore.
And thanks to Mortgage Architects, Benjamin Sammut, and Joe Sammut, for the following…
Next week, I promise.
I know many of you (aka only my mother…) want to see the results of what $129.99 worth of lighting and sound equipment can buy on Amazon Prime.
I’m also acutely aware that there’s new phenomenon out there whereby a lot of people don’t read, but will watch a video with the exact same content and subject matter.
So after today’s discussion, and more questions arise – both here on TRB, and in the media and among buyers and sellers, as the impact of the new OSFI regulations are felt, we’ll have topics to explore in a video next week.
Today, I want to get to some of the questions and comments from the last several days.
Several people had emailed almost identical questions, so I apologize (or you’re welcome?) for not getting the shout-out here.
I’ve also included some discussion points from last week’s blog which I think deserve consideration.
Andrew asks by email:
Q: “Media reports suggest that ‘affordability’ is down 20%. Can you explain that?”
Some people won’t see their affordability change at all with these new regulatory changes. Meanwhile others can see a decrease of up to 20%.
It all depends on what demographic of homebuyer you fall into as well as who you’re working with (broker, bank, etc) and the solutions they can provide.
Sydney asks by email:
Q: “There was an article in the Financial Post by Gary Marr that suggested there’s a ‘loophole’ with the OSFI stress-testing, since you can tinker with the amortization period, to increase your affordability.”
There was a loophole in the stress test before that a lot of people were taking advantage of – they were finding other sources to come up with 20% down and avoid the CMHC stress test (gifts from family, private mortgages, etc).
The point of the new OFSI rules, I think, is to close this loophole and any others like it.
Professional Shanker asks on TRB:
Q: “If you are a move up buyer and are transferring your mortgage to a more expensive house – do you have to re-qualify under the new guidelines?”
This is a great question, and one that doesn’t have an answer yet.
Unfortunately, when OFSI comes out with these regulations, they’re intentionally vague to allow for interpretation from each individual financial institution.
Unfortunately, this usually means fear and confusion for the average Canadian at least for the next few weeks.
I would imagine that if you have any need to change the loan (increase mortgage amount, extend your amortization, break the mortgage and apply for a new charge upon moving, for example), you would have to re-qualify under the new rules.
Q: “If you recently purchased and are renewing with the same lender (say a 5 year fixed), then my understanding is that you do not have to qualify under the new guidelines. What happens if you plan to switch lenders – do you have to qualify under the new guidelines?”
Therein lies the rub. If you are renewing with the same lender, you do not need to requalify under new rules. However, if you switch to any new lender, you would need to re-qualify.
For some parts of the buyer sphere (self-employed, new career, maternity leave, etc) this could leave you with only one option – your current lender. T
These changes will systemically take away your competitive advantage and ability to shop for a better rate or product.
Q: “If you are currently under a variable rate mortgage and want to lock in, do the new lending standards factor in?”
Another great question that is subject to some ambiguity right now.
I would imagine that you would not need to re-qualify, as you were technically already stress tested to be in a variable mortgage.
Q: “Re-financing your mortgage – will the new guidelines have an impact?”
Refinances will be the hardest hit as they almost always fall into the segment of the market impacted by the stress test.
If you are considering pulling equity out of your house, you will want to look into this before the changes come in on Jan 1 because they will directly impact your limit.
Joel, Kramer and Kyle are debating on TRB:
“People are suggesting this is about ‘cleaning up bad debt.’ If that were the case, wouldn’t the government be going after credit card lending practices? I’m of the mindset that consumer debt is far worse than mortgage debt.”
I think that attacking mortgages and claiming they are a bad debt is a bit of a strawman argument.
It makes for good headlines and politics but the fact of the matter is, the Canadian economy relies very heavily on the housing market. From realtors, to mortgage brokers, to builders, contractors, and suppliers, Canada’s real estate industry is MASSIVE.
It would be prudent to ensure it is as safe as possible. And while some disagree with HOW the government is regulating the housing market, there’s no doubt that it should be regulated for the sake of our economy.
Condodweller suggests on TRB:
“Regarding why OSFI did this is neither reason listed above (ie. either an attempt to reign in borrowing among Canadians, or an attempt to cool the market). They want to protect CMHC from mass defaults.”
The new changes actually have nothing to do with CMHC.
These changes are directly aimed at the part of the market that CMHC does not really play in, the conventional mortgage market (80% loan to value or less).
David asks via email:
Q: “What will be the role of alternative lenders after January 1st, 2018? What about credit unions and mono-lines? Do they fall under the same umbrella as the Big 5 banks?”
There will be an even greater need for these lenders as they serve the population that do not fit under the new guidelines.
Credit unions and private lenders will be able to cater to whomever they choose in this new mortgage climate and will have a competitive edge as more and more people will fall out of the box that banks like to fill. Unfortunately, monoline lenders will still have to follow suit.
*Hint hint* there will be a huge opportunity to private investors looking to invest in private mortgages.
A big thanks to Ben for answering these questions!
Ben’s contact information for those who have other queries on this matter, or any others:
Mortgage Architects # 12728