Well, it’s been a full year since our Federal Government imposed some strict mortgage guidelines to cool the housing market and also “persuade” those of us who are already homeowners not to re-borrow as much against the equity in our homes. One of the main changes was reducing the maximum amortization to 25 years (previously 30 years) for all hi-ratio insured mortgages (30 year amortizations still available for conventional mortgages). In addition, a homeowner is no longer able to re-borrow more than 80% against the equity in their home. There were also changes to debt servicing guidelines and some restrictions were put in place for home equity lines of credit. In essence, making it just a little more difficult to qualify for the amount you wish to borrow.
Recently, one of our many lenders decided on their own (with no government intervention) to impose some new tougher lending guidelines effective immediately. Let’s take a peek at what some of their new rules are:
- Guarantor Income – The income of a guarantor can only be considered if a guarantor is a spouse, with interest in the property (so Moms and Dads, you’re off the hook guaranteeing your son’s or daughter’s mortgage with this lender!)
- Secured Line of Credit – This lender is now requiring you to debt service a potential payment on your unadvanced line of credit. For example, let’s say you have a $100,000 HELOC that is currently unused. The monthly payment added for debt servicing is calculated at 4.6% of your $100,000 credit limit (0.046 x 100,000 /12) which is $383.33. This lender is penalizing you for a line of credit you are not even using!
- Unsecured Line of Credit – Unsecured lines of credit and any other revolving debt (Visa, M/C, etc.) must be calculated by using 3% of the outstanding balance. For example, if your credit balance is $10,000 the monthly payment used will be $300. Your actual interest only payments can no longer be used. Again, making qualifying for a mortgage with this lender even tougher!
- Spousal/Child Support – When support is “payable” by a borrower, it must be added as a monthly liability in the Total Debt Service (TDS) calculation. Support payable is no longer deducted from the gross income of the borrower responsible for the payment.
Please keep in mind that these new guidelines are not common practice with many other lenders from which we can choose from. Other lenders may have similar or even more stringent guidelines while others are much more relaxed (which is why we obviously favor them!). Interestingly enough, some of our more “relaxed” lenders quite often offer the best rates. We’ve helped many new clients who have come to us after they have been declined by their own bank where one of our lenders not only approved them but also at a lower rate their bank was quoting them!
Our main objective, as your mortgage broker, is not only to shop for the best mortgage rate for the term you are interested in, but to align you with a lender offering great products, excellent service,and willing to approve the mortgage you are requesting under their lending guideline structure. There is absolutely no cost to you for our services (traditional lending only) as all our lenders pay a finder’s fee to the broker (that’s how we get paid!). Why not give us a call today at 250-762-2070 (or toll-free at 1-888-877-3535 for non-local calls).