Expert author – Anne Perala, Royal Financial Services
Back in January 2018, our federal government changed the mortgage lending rules, and we can now look back to see what that has meant for Canadians.
The government ruled that every mortgage borrower now had to be qualified based on creditworthiness and taxable income, and no lending based on home equity alone was allowed any more. The government also created a Stress Test rule that required ALL institutional lenders to use 2% higher rate than the actual lending rate they were giving their customers to qualify them, a minimum rate of 5.34% – or higher. Only private money lending remains exempt from that rule.
The government reasoned that borrowing by Canadians borrowing was way out of control, and they also thought that the high property values in large cities like Toronto or Vancouver would come down with the new restrictions. Canadians were demanding more affordable homes, and since the government or the private sector were not building any, they thought that making mortgage borrowing harder would calm the demand, and maybe drop the property values. What has actually happened is that the demand for those affordable homes has increased as fewer people can qualify to buy up, fewer homeowners are selling their homes even to downsize because they no longer can qualify for a new mortgage, and the young and the old alike are now fighting for those few affordable homes driving the price range up with multiple offers and bidding wars. We are taking in more people from outside the Canadian borders every year, and nobody is trying to live outside during our winters as far as I know.
Based on the statistics we now have shown that 28% of all registered mortgages in 2018 were private money funded, and that is a very large number. Private money mortgage rates are roughly two or three times higher than the bank rates and also have fees, so that is disastrous for the borrowers who cannot access bank money because of the new rules. It shows that Canadians are still borrowing to buy or to refinance, to pay for home improvements and renovations, maybe give children or grandchildren down payments to buy their first homes, and so on. It has consequences to regular people, banks, home builders and mortgage brokers like myself who are trying to find a way to get the money the best they can. We all understand that if real estate related spending such as home sales or renovations slows down, it will also have the same result to home builders, renovators, plumbers and electricians, supply stores and garden centres to reduce workers and increase unemployment. It will result in less work for lawyers and real estate agents, home inspectors and appraisers, etc. and slow down the economy.
While I cannot tell our government what to do, I will work hard to find the best possible financing solution to all of my clients. Feel free to call or email me with questions Phone: 905.428.6272 Email: firstname.lastname@example.org; I am available during the work week from 9 am till 8 pm.
About the Expert
Company: Royal Financial Services
Contact: Anne Perala
Anne began her career in 1986, into mortgages with Scotiabank then with RBC.
In April 1991 after getting her Mortgage broker’s licence, Anne incorporated Royal Financial Services Inc. Every two years, we rewrite our exams after mandatory education courses to renew our licenses. It is crucial for people to only trust licensed mortgage brokers who are ruled and regulated by FSCO, just like banks and other financial institutions.
We specialize in residential mortgages, which include single & multi-unit homes, small apartment buildings, cottages and investment properties, but we also do small commercial units. We have contracts with banks, trust companies, mortgage finance companies and private lenders so that no matter what the clients need, we will find the money. We arrange conventional and hi-ratio insured first mortgages as well as second mortgages, finance Power of Sales, Consumer Proposals, tax arrears, and more.
Working from my home office, I am available to clients from 9 am till 8 pm during the week and the occasional Saturdays.