Over   the past several years, we have seen significant changes to the way that lenders qualify borrowers applying for mortgages – with each change making the mortgage qualification process progressively more challenging.
 
  The latest proposed change for January 1st, 2015 would see existing unsecured debt payments (credit cards, lines of credit, etc) calculated using 3%   repayment on the balance regardless of the contractual amount you’re required to pay each month. Those debts and their corresponding 3% payments ultimately determine your mortgage qualification amount. The more outstanding debt you have, the smaller mortgage amount for which you will qualify.
 
  Currently, lenders accept the contractual payments for unsecured debt, even   if the monthly payments are lower than 3% of the outstanding balances.

Example: Outstanding debt includes a $20,000 line of credit.
          

• At an interest rate of 6%, the bank currently only requires a minimum monthly ‘interest only’ payment of $100. New rules would require the more conservative use of 3% of the debt balance during qualification.
            
• This means that, after January 1st, the lender’s underwriting practices would require a payment of $600 per month (3% of the $20,000 outstanding debt) be used for qualification purposes instead of the current $100/month interest only payment.
          

  

• This has a significant impact on qualifying ratios.
          

  

• For instance, if someone makes $70,000 a year and wants to buy a home, and they have one debt – the $20,000 line of credit  – they would currently qualify for a mortgage of about $425,000. As of January 1st, their qualification amount would drop to about $350,000 – a  significant erosion of $75,000 in the buyer’s home purchasing capacity.

  If you have balances on a line of credit, car loan/lease, credit card,  student loan, etc, the mortgage qualification amount will dip even more as of January 1st!

Given that interest rates continue to hover near historic lows, the full impact of  these new qualification rules could be even more pronounced and magnified   once rates start to climb. If you’re considering a new mortgage in the next  4-6 months, please contact me directly at 604-802-3983 or callateam@dominionlending.ca so we can discuss your specific situation and plan accordingly in advance.

Angela Calla, AMP

DLC-Angela Calla Mortgage Team

604-802-3983 callateam@dominionlending.ca

www.angelacalla.ca

Selling your current home and   moving into a new one can be stressful enough, let alone worrying about your   current mortgage and whether you’re able to carry it over to your new home.

Porting enables you to move to another property without having   to lose your existing interest rate, mortgage balance and term. And, better   yet, the ability to port also saves you money by avoiding early discharge   penalties.

It’s important to note, however, that not all mortgages are   portable. When it comes to fixed-rate mortgage products, you usually have a   portability option. Lenders often use a “blended” system where your current   mortgage rate stays the same on the mortgage amount ported over to the new property   and the new balance is calculated using the current interest rate.

With variable-rate mortgages, on the other hand, porting is   usually not available. As such, upon breaking your existing mortgage, a   three-month interest penalty will be charged. This charge may or may not be   reimbursed with your new mortgage.

Porting conditions
  While porting typically ensures no penalty will be charged when you sell your   existing property and buy a new one, some conditions that may apply include:

  
• Some lenders allow you to port your mortgage, but        your sale and purchase have to happen on the same day. Other lenders        offer a week to do this, some a month, and others up to three months.

  

• Some lenders don’t allow a changed term or force you        into a longer term as part of agreeing to port your mortgage.

  

• Some lenders will, in fact, reimburse your entire        penalty whether you’re a fixed or variable borrower if you simply get a        new mortgage with the same lender – replacing the one being discharged.        Additionally, some lenders will even allow you to move into a brand new        term of your choice and start fresh.

  

• There are instances where it’s better to pay a        penalty at the time of selling and get into a new term at a brand new        rate that could save back your penalty over the course of the new term.

As always, if you have any questions about mortgage   portability or your mortgage in general, I’m here to help!

Angela Calla 604-802-3983 callateam@dominionlending.ca