By Peter Kinch
Earlier this summer there was a lot of talk around the changes Ottawa was making to the mortgage rules. The rule change that received the biggest buzz and headlines was when Finance Minister Jim Flaherty announced that government insured mortgages (read CMHC) will no longer allow amortization periods of over 25 years. In other words, we no longer have the option of taking 30 years to pay off our mortgages if they were insured. This announcement received a lot of airplay in cities like Vancouver because it speaks to the heart of a very real concern - affordability. Simply put, a house in the Vancouver market is more affordable if you can spread your mortgage payments over 30 years instead of being limited to only 25.
Since affordability is a huge topic on the west coast, it garners a lot of attention. But what I find a little surprising is the fact that there is another set of rule changes scheduled to take effect by the end of 2012 that have not received as much media attention but could impact local homebuyers more so than those announced in June.
OSFI is the Office of the Superintendent of Financial Institutions - a long name for an entity that is effectively the government watchdog over the federally regulated banks. In June, OSFI announced some new mortgage lending guidelines that it will require federally regulated banks to comply with by Oct. 31, 2012. These guidelines include:
HELOCS: The maximum amount you can borrow on a Home Equity Line of Credit will drop from 80% to 65%. A lot of local homeowners are sitting on equity in their homes and the ability to borrow up to 80% of that equity for the purpose of investing created some tax advantages among other benefits. Additionally, many home owners prefer to use lower cost home equity mortgages to consolidate their more expensive debt such as credit cards etc.
Stated Income: Going forward, lenders will require more documentation for self-employed individuals who previously may have been able to 'state' their income without having to verify it. There are a lot of self-employed individuals in the local market who benefit from the 'Stated Income' mortgages.
In my opinion, theses rule changes could have a greater long-term effect than limiting the amortization to 25 years.
THE LOCAL ADVANTAGE:
I am certain that you will start to see an increase in headlines covering the OSFI rule changes shortly as they begin to take effect. However, there is something very important for local readers to be aware of:
The OSFI regulations only govern federally regulated banks!
Translation: Local credit unions are regulated provincially and do not fall under OSFI rules.
As such, your local credit union could very well provide you with some lending opportunities that are simply no longer available through a federally regulated chartered bank. How long these advantages last is anyone's guess - but for now - living in B.C., where we have a wide variety of credit unions to choose from, will provide local readers with a reprieve from Mortgage Rules Round 2.
Peter Kinch is the author of The Canadian Real Estate Action Plan and co-author of the Canadian Bestseller - 97 Tips for Canadian Real Estate Investors. Peter Kinch Mortgage Team is located at Unit 201-101 Klahanie Dr. Port Moody, 604-939-8326 www.peterkinch.com
