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Buying or Refinancing Your Rental Property
How will the changes impact you?
New rules effective April 19th will impact some real estate investors more than others. All buyers of investment properties will be required to make a 20% down payment. No more high ratio rental purchases. If you have the 20% down, good net worth and good credit you will have the option of working with lenders on a conventional mortgage basis and under the lender rental guidelines - not CMHC. Why is this important? Because, some lenders do not adhere to the CMHC guidelines and may not be restricted by the new 50% add-back policy. Some lenders may follow the new guidelines while others are considering an offset approach. The difference between the two options is significant.
This is where it is important to keep in contact with your mortgage broker for access to those lenders that are the best fit for rental mortgages. It is still not 100% clear on what all the lenders will do after April 19th. However, it is important for you to know that for some investors there will still be options.
If you are unclear on how the rental guidelines work, please contact me with any questions.
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Best Rates
RESIDENTIAL MORTGAGE RATES
As of Tuesday April 13, 2010
TERM
INTEREST RATE
1 year 2.39%
2 year 2.85%
3 year 3.50%
4 year 3.99%
5 year 3.75%
7 year 4.45%
10 year 4.99%
Open Variable rate 3.05% (P+.8)
Closed 5-year variable rate 1.75% (P-.50)
Home Equity Line of Credit 3.25% (P+1)
Prime (P) is currently at 2.25%.
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Qualifying for your mortgage - after April 19th
Effective April 19th, all borrowers for OWNER OCCUPIED homes will still be able to purchase with 5% down. If you want a fixed rate with a 1,2,3 and 4 year term OR a variable rate mortgage you will now have to qualify at the Bank of Canada benchmark rate - not the lenders prime lending rate - the benchmark rate. Today that rate is 5.85%. Before April 19th the qualifying rate was the lender contract rate (the discount rate we quote you - or the 3 year posted rate). Today the 3 year posted rate is 4.5%. So, you can see the change reduces your buying power. However, if you want a 5-year fixed rate then you qualify at the 5-year fixed contract rate (discounted). I find that most of my first time buyer clients have gone with the 5-year fixed rate and with a good mortgage payment plan (we create together) they take full advantage of the good fixed rate to improve their equity position when it is time to renew.
Remember, these new rules cover CMHC insured mortgages. If you have 20% down you will fall under the lender guidelines. At this point we do not have all details from lenders whether they will follow the guidelines. If you have good net worth, good credit and income you may expect some flexibility in the qualifying process.
If you are looking to make a purchase after April 19th and want to review your personal situation, please give me a call.
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Self Employed
How will the new rules effect you?
Effective April 9th the Department of Finance changed the rules for self-employed borrowers with less than 35% down payment. Under the new rules if you have less than 35% down and have been self-employed for over 3 years you must qualify for your mortgage by proof of income (line 150 on your tax return). If you have been self employed for under 3 years you can state your income (reasonable for your industry) and proof income taxes are paid. You must have been self employed for at least 2 years or if less - have been previously employed in the same industry.
If you have 35% down you can fit under lender guidelines for a stated income option with a few lenders. This option does require you have very good credit and you may have to show some proof of income if requested. Working with your broker you can be sure to fully understand what kind of payments you really can afford and then present your best side to the lender to qualify.
Again, if in doubt of your options, give me a call anytime. |
