Tuesday, October 6, 2015

How do changes to mortgage rules effect a purchase?

In June 2012, the B-20 Residential Mortgage Underwriting Practices and Procedures, which are guidelines set up by the Office of the Superintendent of Financial Institutions, were introduced.  

These guidelines require banks and lenders to follow more stringent underwriting guidelines.  One of the larger guideline changes was that for clients who choose a mortgage term other than a five year fixed rate, the application will that be underwritten using a benchmark qualifying rate.   

As an example, if a client is applying for a home with a five year fixed rate, we could use a 2.49% in the application when determining if the client qualifies.  However if a client is looking at a variable interest rates for example, then we would need to use a benchmark interest rate, currently at 4.64%, to qualify them even though their actual rate will be much lower.  

This can make quite a change to the amount of client qualify for.  If the client qualifies for a $250,000 purchase price with a five year fixed rate, they may only qualify for a $200,000 purchase price with a variable interest rate, as an illustration.

I am not a mortgage specialist, if you require further clarification, please let me know and I will connect you with a qualified professional.

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