REFINANCING YOUR MORTGAGE IN 2018
Changes to the Mortgage Qualification rules have been very dynamic in the past decade. In an effort to curb runaway real estate prices, Governments at all levels have been making changes. For a full breakdown of all the mortgage changes read this post: “A History of Mortgage Changes in Canada”
WHAT IS A REFINANCE?
For this post, we will be focusing on the refinance market. First, let’s define what a refinance is. Refinancing your mortgage simply means accessing the equity in your mortgage by increasing your mortgage amount. This usually occurs during your term and can often trigger an early payout penalty.
A mortgage renewal happens at the end of your term. (maturity date) A renewal is different because the borrower isn’t making any changes to their original mortgage terms (adding money or changing amortizations).
REFINANCING YOUR MORTGAGE PRIOR TO NEW RULE CHANGES
There was a time as recent as 10 years ago where a homeowner could refinance their home up to 95% of its appraised value. If the market slowed down and the property values declined, the homeowner would owe more money than the house’s current value. I think we can all see the issue with that system.
The Government decided that this was potentially very dangerous so they changed the maximum loan-to-value for refinance transactions to 80%. For example, if you own a condo valued at $500,000, you could refinance to a maximum of $400,000. (80% of $500,000).
The mortgage insurers in Canada offered insurance to the lenders on refinance deals which meant the consumers had competition and lenders would have to compete on the interest rate and earn their refinance business.
REFINANCING YOUR MORTGAGE POST RULE CHANGES
Homeowners can still refinance their mortgage to a maximum of 80% loan-to-value. The major change is that refinance transactions are no longer insurable at CMHC, Genworth, and Canada Guaranty.
What does this mean for the homeowner who wants to access their equity?
It means fewer choices and higher rates.
Monoline lenders(who often have the best rates) want insurance on their mortgage portfolio as part of their business model. They don’t take deposits like Banks and Credit Unions, so they must have insurance in place to cover any downturns. That insurance is no longer offered which forced many lenders to charge a higher interest rate to compensate for the higher risk. The higher risk gets passed on to the homeowner in the form of higher interest rates.
It’s important you speak with a qualified Mortgage Broker when weighing your refinance options.
At Dominion Lending Centres, we have access to over 50 lending partners ensuring you’ll get the best deal possible. Call Brent today with any questions at 778.558.5159.