OSFI Changing Mortgage Rules!
The Office of the Superintendent of Financial Institutions (OSFI) announced changes to mortgage financing as they take action to reduce systemic banking system risk. On June 28, 2022, OSFI explained that they need to ensure that federally regulated financial institutions are well prepared to address persistent risk of outstanding consumer debt. The action they are taking is outlined in their Annual Risk Outlook 2022-2023. The announced changes are focused on Combined Loan Plans (CLP), Shared Equity Mortgages and Reverse Mortgages.
Combined Loan Plans, also known as CLP are mortgage products that have a re-advanceable component to the mortgage. An example of this type of mortgage is an amortized mortgage (fixed or variable) that also has a Line of Credit component to it as well, such as a HELOC). These types of mortgages in the market allow credit to be re-advanced via the line of credit portion as the principal declines, even when the balance is over 65%. OSFI has announced that the change will force the principal amount of the payments to be applied to the reduction of the mortgage balance over 65% which will reduce the borrowing limit on the re-advanceable amount of the mortgage.
Shared Equity Mortgages are programs that pair home buyers with third parties to help them come up with cash for a down payment, in exchange for an equity stake in the property being purchased. The Canadian Government came out with such a program back in 2019 known as the First-Time Home Buyer Incentive Program and shortly after, several non-profit and community groups have rolled out their versions of the program. OSFIs announcement was simply clarifying that these programs must be legitimate equity stakes and not simply another loan. They must be on equal footing with the buyers equity stake.
Reverse Mortgages are programs that enable qualifying home owners to access existing equity in their homes without having to sell and not necessarily having to pay regular mortgage payments though interest is charged so the overall equity can disappear over time. OSFIs announcement pins a new cap on the amount the home owner can take out to 65% of the property value at the date or origin of the mortgage.
OSFI is continuously monitoring the economic environment for a range of vulnerabilities that could pose a risk to the health of Canadas financial system. Today, we have asked federally regulated financial institutions to make their innovative mortgage products safer and more sustainable over the long term. We are confident that our actions today will contribute to the continued resilience of Canadas residential mortgage lending industry, and in turn of our financial system.
- Peter Routledge, Superintendent
These changes are scheduled to take effect in late 2023 as the lenders fiscal year comes to an end.
Source: OSFI Media Release, Canadian Mortgage Trends, BNN Bloomberg CBC News
There Will Be More Renters Than Homebuyers in 2022
The majority of renters in Canada doubt they will have the ability to purchase a home in 2022 because of the continued increase in interest rates and high inflation. Although the Canadian housing market is cooling for the most part, across the country, the Bank of Canadas multiple rate hikes are becoming the deal breaker when thinking of buying. The increase in rates are creating higher mortgage payments and post pandemic property taxes are not going down either. Canadians will continue to see homeownership as increasingly challenging, said Paul Orlander, Executive Vice President of Individual Customers at Canada Life.
According to a recent survey by Canada Life, about 73% of those respondents who are renters said its a bad time to buy a house while 17% said they would never buy one. The main reasons given for staying away from buying were a lack of money, fear and uncertainty. With inflation reaching 7.7% (May 2022) and an expected rate hike of 75 basis-points by the Bank of Canada on July 13, 2022, their rationale is not surprising.
Mr. Orlander has stated that homeownership and the cost of maintaining a house could create an issue for Canadian trying to save for retirement and believes renting is a practical option right now if you wish to maintain flexibility or need to protect cash flow for savings and retirement.
Source: The Motley Fool
Purchase Plus Improvements
The Purchase Plus Improvements Program provides mortgage borrowers the opportunity to do improvements in conjunction with the purchase of the home. The purchase and the improvements are combined into one mortgage and a single advance.
Purchase, Business For Self (Fully Qualified Alta A), Family Plan, Second Homes
New to Canada, Rental Property Program (2 4 units), Owner-Occupied Rentals
Flexible Down Payment Program
Purchase a home with as little as 5% down payment, 10% for Business For Self Alt A Program
Existing requirements related to income, down payment and credit worthiness apply
Gifted Down Payment from immediate family can be used
Government Grant may be considered if pre-approved by insurer
Credit Scores below 680 have lower affordability ratio requirements
Lending Value is based on the lesser of the improved property value of the sum of the purchase price plus direct improvement costs
Improvements cannot exceed 20% of the initial property value or $40,000.00
Required Down Payment is the percentage of the total purchase price plus cost of the improvements
Detailed Quotes for the improvements are required up front, prior to the mortgage application being submitted to a lender
Improvements must be completed within 120 days of the purchase closing date, though some lenders may cap this at 90 days
An Inspection Report is required to confirm the improvements have been 100% completed prior to funds for the improvements being released by the lender
An Inspection Report may be waived in particular circumstances. An example would be improvements under $15,000 and then receipts would be required. Lenders differ on this aspect so ensure these requirements are understood upon receipt of the mortgage commitment.
The proposed improvements must add value to the home to qualify
Improvement Funds are Single Advance Only
Further requirements and/or qualifications may be applicable. Contact Chris Stewart to further discuss this mortgage program regarding your specific circumstances.